Just like the previous owner of this marine services business,...

Just like the previous owner of this marine services business, namely Skilled Group, bought this marine business right at the very top of the cycle [*], one can be forgiven for feeling like PRG is now selling it at the bottom of the cycle.

([*] I recall SKE paying something like $80m for the business that PRG is now selling for an effective valuation of $59m (that's the Australia and New Zealand business), plus PRG is throwing in an international business (whatever that happens to be worth) for free.)


So many boards lack long-term vision; time and time again, they seem to get caught up in whatever the prevailing market mood happens to be. As a result, they invariably end up Buying-High and Selling-Low.

On a less gloomy note, I am sure the business being divested is not making any money at the moment and, as PRG still has a significant chunk of debt, following the SKE acquisition ($200m of it, with Net Det-to-EBITDA >2x and EBIT-to-Net Interest Cover of just 3.8x), any opportunity to reduce debt without foregoing any earnings should probably be taken.


Valuation-wise, prima facie, the stock looks decidedly cheap on a P/E multiple (@ 10x P/E), but the elevated levels of borrowings bloats the EV, leaving it merely mildly undervalued, I think, on an EV/EBITDA basis (@ around 6.2x) and on a Free Cash Flow yield on EV (~7.5%).

I think that - given the nature of the business and its less-than-exemplary financial pedigree - I would pay no more that 12x P/E , 7.5x EV/EBITDA, and I'd require a 10% FCF Yield.

Meaning that PRG's stock is probably 10% to 15% undervalued currently, depending on the valuation methodology one uses.

But it is not a great quality business, making it a risky investment.

And to be compensated for that elevated risk, I think one needs to be able to buy the sock at a discount of more than just 10%-or-so below fair value.