Jun 5, 2008
The best time to buy is when there’s blood on the street. Air Transport Services Group (ATSG) or better known as ABXA has been on my radar for a while. A few great investors have owned this company, patiently waiting for a cloud of uncertainty brought on by a shaky relationship with DHL to go away.
In a couple weeks, that happened. DHL announced that they were going to break the contract and source their flights out to UPS and sent ATSG off a cliff. So far, the company’s stock price has declined nearly 60%. When I witnessed this happening, I suspected that there may have been an overreaction.
The company’s complex arrangement with DHL made it quite complicated to concretely peg its value. My best estimate is that even without DHL, ATSG will be able to survive and generate $30 million in FCF. Right now, the company is trading at $72.71M or 2.4x FCF. My own purchase price was $1.70 but with my valuation I believe I paid was less than 50% the company’s true value, which is a strong enough margin of safety.
News has been sparse from management, but i did find this reassuring gem:
Air Transport Services Group said it has the liquidity to meet its debt terms even if a possible deal between DHL Express and UPS takes a large chunk of its business.
“Our preliminary view based upon what we know at this time, which we have shared with our principal creditors, is that our financial strength, marketable asset base and projected cash flow should allow us to remain in compliance with our financial covenants and required debt amortization under our credit agreement for the remainder of their terms,” said CEO Joe Hete in a news release.
Search StreetCapitalist.com
About me
Tariq Ali is studying Economics at the University of Texas at Austin, where he also operates a non-profit microfinance organization called TEEXAS.org. In his investing, Tariq draws upon the knowledge and experience of the great investors of our time, including Benjamin Graham, Warren Buffett, Joel Greenblatt, and George Soros. Tariq is actively pursuing a career in finance.
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Current Portfolio Holdings
My current positions, these are subject to change.
- Fairfax Financial Holdings Limited (FFH) - through its subsidiaries, is engaged in property and casualty insurance and reinsurance, investment management and insurance claims management. The Company’s business segments comprises Canadian Insurance, United States Insurance, Asian Insurance, Reinsurance, Runoff and Other.
- Air Transport Services Group Inc. (ATSG) - formerly ABX Holdings Inc., is a holding company whose principal subsidiaries include three independently United States-certificated airlines: ABX Air, Inc. (ABX), Capital Cargo International Airlines, Inc. and Air Transport International, LLC.
- The Mosaic Company (MOS) - is a producer of phosphate and potash combined, as well as nitrogen and animal feed ingredients. The Company operates its business through four business segments: phosphates, potash, offshore and nitrogen.
- The Steak N Shake (SNS) - The Steak n Shake Company (Steak n Shake) is engaged in the ownership, operation and franchising of Steak n Shake restaurants. During the fiscal year ended September 26, 2007 (fiscal 2007), Steak n Shake had 435 Company-owned restaurants and 56 franchised restaurants located in 21 states.
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One Comment, Comment or Ping
Dimitry on Jun 10th, 2008
Thanks for the tip Tariq. Checking them out now
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