Hedge Funds Are Fond of Era Group Inc (ERA)

Relative to its small size, Era Group Inc (NYSE:ERA) generated outsized interest from hedge fund managers during the fourth quarter of 2013, with Richard Mashaal of Rima Senvest Management, Dan Sobol and Lisa Hess of SkyTop Capital Management and Cliff Asness of AQR Capital Management either initiating positions or adding to their existing holdings. Other shareholders of the oil equipment and services company include Chuck Royce’s Royce & Associates (the sixth largest shareholder, owning 1.0 million shares or a 5% stake), Paul Orin and Alex Porter’s Amici Capital and Michael Lowenstein’s Kensico Capital.

Era Group is a $600 million market cap company offering helicopter transportation services primarily to transport personnel to, from and between offshore installations, drilling rigs and platforms. The primary users of its transport services are major integrated and independent oil and gas companies and U.S. government agencies. In addition, the company provides air medical services, firefighting support and flightseeing tours. Era was spun-off from oil and gas equipment operator Seacor Holdings, Inc. (NYSE:CKH) in January 2013.

The stock has been a strong performer, returning 43% over the past 12 months, buoyed by increased oil and gas activities in the U.S. Gulf of Mexico and Alaska, commencement of international operations in 2013, increased Search And Rescue (SAR) activities and higher gains on asset dispositions, partially offset by lower dry-leasing (leasing of aircraft without crews, maintenance or insurance) and air medical activities. In addition, its EC225 heavy helicopters, which comprise 25% of Era Group Inc (NYSE:ERA)’s fleet value and were grounded globally in October 2012 due to manufacturer issues, resumed operations during the third quarter of 2013, aiding comparisons.

The valuation of Era Group Inc (NYSE:ERA) is in-line with its peer group of air transportation service providers, trading at forward EV/EBITDA and price/book multiples of 8.3X and 1.3X, respectively. Its profitability picture is mixed, as the company generates above-average margins and free cash flows, but its returns on equity and invested capital are lower. In addition, its free cash flows have been on an improving trend but are still negative. Era’s growth profile is in-line with the peer group, with the consensus expecting approximately 19% revenue growth and 32% EBITDA growth over the next 12 months.

Given the stock trades roughly 13% below its net asset value (or the net fair market value of its helicopter fleet and other assets) of $33.07 per share, Era Group Inc (NYSE:ERA) provides an attractive way to gain exposure to improving fundamentals within the energy sector globally.

Disclosure: none

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