Author Topic: TDG - Transdigm  (Read 136314 times)

giofranchi

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Re: TDG - Transdigm
« Reply #110 on: June 04, 2015, 09:26:20 AM »
Hi Gio,
What's your valuation on TDG? It seems to me that the FCF multiple is close to 20 but the FCF annual increase rate is only in the 8-10% range.

Well, I think something of this quality should trade around at least 20 x Adjusted EPS. Right now it is trading at 26x. They have increased revenues at a CAGR of 20.5% for many years and I think their market is large enough to go on increasing them at a similar annual rate for many more years into the future. Adjusted EPS should follow suit.
If they compound Adjusted EPS at 20% and 10 years from now TDG is trading at 20x, my annual return would be 20 x 0.75 = 15% compounded annual.

Cheers,

Gio
« Last Edit: June 04, 2015, 09:27:56 AM by giofranchi »
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mateo999

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Re: TDG - Transdigm
« Reply #111 on: June 04, 2015, 10:29:45 AM »
I posted this a few minutes ago in the PCP thread, but thought some following dig'm might care...

When hearing a pitch on PCP in April, Ackman asked about 3D printing as a "when, not if" type disruptor to the business.  Those doing the pitching brushed off the notion essentially as ridiculous.  This comes to mind:

"We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction."

-Bill Gates


And so it begins (from Bloomberg this morning):

EasyJet to Use Drones to Inspect Jets, Mulling 3-D-Printed Parts
By Benjamin Katz and Kari Lundgren
(Bloomberg) -- EasyJet Plc said it will begin using drones to inspect jets on the ground starting next year and is experimenting with the 3-D printing of replacement parts as it pursues innovations to keep costs down.  The airline said it has succeeded in using a drone to inspect one of its planes and will roll out the robots at engineering bases over the next 12 months. The technology is intended to trim the number of hours jetliners are out of service, the Luton, England-based company said in a statement.

Europe’s second-biggest discount carrier is looking for ways to use technology to cut costs and trim delays caused by mechanical failures. Technologies under development include three-dimensional printing to replace cabin parts such as armrests, reducing repair times and the need for storage space, and in-flight troubleshooting of technical problems in conjunction with Airbus Group SE, which supplies its planes.

“We have made great strides on our work with drone technology,” Chief Executive Carolyn McCall said in the statement, adding that EasyJet is continuing to “look for new and original innovations to help run our operation smoothly.”

Drones could be used to pick up damage caused by a lightning strike, the kind of incident that can require a full day of inspections. An overnight delay can cost as much as 15,000 pounds ($23,133), EasyJet has said.

Liberty

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Re: TDG - Transdigm
« Reply #112 on: June 04, 2015, 11:12:45 AM »
I think this could affect PCP more than TDG. If someone ever 3D-prints TDG's stuff, it's likely to be TDG. They own the IP and the only certification for most of what they sell, and most of what they make is under-the-radar because they are small, low-cost parts (not big sexy engine blades or whatever).
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fisch777

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Re: TDG - Transdigm
« Reply #113 on: June 04, 2015, 12:44:40 PM »
I think it is more likely that 3D printing disrupts high-margin aftermarket replacement parts than the primarily-OEM parts PCP is producing.  3D makes sense when low-volume, quick production is paramount versus cost, not in planned production lines.  ~85% of PCP sales are OEM.  In fact, making cheaper aftermarket replacement parts by copying "proprietary" IP is exactly what Heico has been doing for years.  Heico reverse engineers proprietary parts made by Pratt, GE, etc and then gets them PMA-certified.  At least in developed countries, it would be illegal to 3D print a replacement part to install on an aircraft without PMA (or similar) certification that can take 1-2 years.

I can see some disruption possible on the fastener side, but large cast & forged parts are unlikely to be duplicated by a printer.  You can also bet both TDG and PCP are investing in this already.

giofranchi

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Re: TDG - Transdigm
« Reply #114 on: June 05, 2015, 01:08:05 AM »
Welcome to the club :)

Actually, I have changed my mind… It is not the price at all: I think it is not cheap, but neither too expensive. Imo a fair price to open a new position leaving some room to average down.

What bothers me instead is exactly what bothered me with VRX: I cannot easily find organic growth results. Therefore, I cannot easily assess the performance of all the businesses they have bought and keep on buying, after they have been acquired.

Liberty,
You have followed TDG for a long time now: could you help me get a clearer picture of their organic growth? I know their aim is Organic EBITDA Growth around 10-12%, but what are the metrics you are looking at to monitor how Organic EBITDA is actually growing?

I like TDG very much, but without the certainty I am able to understand their business results correctly, I must watch it from the sidelines, just like I watched VRX from the sidelines for a while.

Thank you!

Gio
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giofranchi

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Re: TDG - Transdigm
« Reply #115 on: June 05, 2015, 06:29:45 AM »
Quote
Organic net sales grew approximately 8%
--Nicholas Howley, 2014 Annual Letter

Very good! :)

Is there a place they show organic growth in a more systematic way than the annual letter?

Thank you,

Gio
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cmlber

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Re: TDG - Transdigm
« Reply #116 on: June 05, 2015, 06:42:49 AM »
Quote
Organic net sales grew approximately 8%
--Nicholas Howley, 2014 Annual Letter

Very good! :)

Is there a place they show organic growth in a more systematic way than the annual letter?

Thank you,

Gio

Every quarter in the quarterly results presentation they have a slide showing organic revenue growth for the quarter by segment and a slide showing FY outlook.  Slides 6 and 7 of the most recent quarters presentation.  You can back into what that translates to in terms of organic EBITDA growth by taking revenue growth times gross margin over last years EBITDA.

Liberty

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Re: TDG - Transdigm
« Reply #117 on: June 05, 2015, 06:51:21 AM »
Welcome to the club :)

Actually, I have changed my mind… It is not the price at all: I think it is not cheap, but neither too expensive. Imo a fair price to open a new position leaving some room to average down.

What bothers me instead is exactly what bothered me with VRX: I cannot easily find organic growth results. Therefore, I cannot easily assess the performance of all the businesses they have bought and keep on buying, after they have been acquired.

Liberty,
You have followed TDG for a long time now: could you help me get a clearer picture of their organic growth? I know their aim is Organic EBITDA Growth around 10-12%, but what are the metrics you are looking at to monitor how Organic EBITDA is actually growing?

I like TDG very much, but without the certainty I am able to understand their business results correctly, I must watch it from the sidelines, just like I watched VRX from the sidelines for a while.

Thank you!

Gio

You are selling your 8% position the day after buying it?  ???

They sometimes break down organic growth, and sometimes do a pro-forma of revenues by sector excluding recent acquisitions, but you mostly have to infer it yourself by keeping track of acquisitions.

As long as I can keep an eye on organic growth once in a while, I don't mind not having an update every quarter. It would be nice to have it conveniently packaged at frequent intervals, but I tend to trust their track record on that front. With RPMs growing faster than GDP, they'd really have to screw things up to not get a lift from that.
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giofranchi

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Re: TDG - Transdigm
« Reply #118 on: June 05, 2015, 06:55:00 AM »
Every quarter in the quarterly results presentation they have a slide showing organic revenue growth for the quarter by segment and a slide showing FY outlook.  Slides 6 and 7 of the most recent quarters presentation.  You can back into what that translates to in terms of organic EBITDA growth by taking revenue growth times gross margin over last years EBITDA.

Thank you very much! Very helpful! :)

Cheers,

Gio
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giofranchi

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Re: TDG - Transdigm
« Reply #119 on: June 05, 2015, 07:01:28 AM »
You are selling your 8% position the day after buying it?  ???

 ;D ;D

No, actually I thought I was going to, but hadn’t pulled the trigger yet… Evidently, I was still a bit uncomfortable…
Now I will go back many quarters and check if they systematically disclose organic growth in revenues by sectors like you and cmlber have suggested… That would be great!

Cheers,

Gio
« Last Edit: June 05, 2015, 07:41:38 AM by giofranchi »
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