Booz Allen & Hamilton (BAH) $252mm IPO - with a market cap of $2.1bb at the price range mid-point of $18 - is scheduled for Wednesday, November 17, 2010.
Conclusion
BAH is overpriced based on comparing their annualized P/E of 25x with competitors listed in their SEC filing including CACI Int'l (CACI) at 13x P/E; L-3 Comm (LLL) at 9x P/E; and ManTech (MANT) at 12x P/E.
Minuses
Risky Income statement:
- 98% of revenue from the US government, expected to cut federal spending.
- Interest charges are double net profit: 3.2% vs 1.6%.
- Operating income is only 6% of revenue for the six months ended September 30, 2010.
- Crippled balance sheet.
- In 2009 paid $612mm in dividends to private equity shareholders resulting in a negative tangible net worth of $586mm post-IPO.
It can’t pay dividends due to restrictive debt covenants. Plus: $11bb backlog, two years of sales
Business
- Consulting for the US government.
- 98% of revenue in fiscal 2010 from services provided to over 1,300 clients across the U.S. government under more than 4,900 contracts and task orders.
Dividends
- In 2009 paid $$612mm in dividends to stockholders resulting in a negative tangible book value of $586 million.
- Can’t pay dividends to Class A common stock holders because of “covenants in the credit agreements governing senior credit facilities and mezzanine credit facility.”
Competition
Major competitors include: (i) contractors focused principally on the provision of services to the U.S. government, such as CACI International, Inc., L-3 Communications Holdings, Inc., ManTech International Corp., SRA International, Inc., and TASC Inc.; (ii) large defense contractors which provide both products and services to the U.S. government, such as General Dynamics Corp., Lockheed Martin Corp., Northrop Grumman Corp., and Raytheon Co.; and (iii) diversified service providers, such as Accenture, Computer Sciences Corp., Deloitte Consulting LLP and SAIC, Inc.
Use of Proceeds
$230mm
Repay debt
BAH Valuation Metrics
Disclosure: none
