Precision Castparts Inc. (PCP) intends to acquire state-of-the-art aerostructures manufacturer Centra Industries in an all-cash transaction. The deal is expected to be completed by the first quarter of fiscal 2013 and is expected to be accretive to earnings, effective immediately.
Based in Cambridge, Ontario, Centra primarily manufactures a variety of machined airframe components and assemblies, both in aluminum and hard metals. Centra’s core competencies include the high-speed machining of complex, high-precision structures, sub-assembly and kit integration.
The acquisition will be included in Precision Castpart’s fasteners segment which is a leading developer and manufacturer of highly engineered fasteners, fastener systems and precision components, primarily for critical aerospace and automotive applications. In the latest reported quarter, the Fasteners segment reported revenue growth of 35% year over year, driven by the ramp up of the Boeing 787 Dreamliner (PCP generates approximately $6 million on each 787 manufactured).
The recovery of fasteners distribution orders for other programs also helped. In addition, the company’s strategic acquisition of Primus in October last year also added about a $100 million to sales. Primus is a leading Tier II supplier of highly engineered metallic and composite parts, kits and assemblies to the global aerospace industry. Primus' customers include Boeing Co. (BA) and Airbus.
The acquisition of comparatively smaller OEMs supplying parts to Boeing appears to be a strategic decision by Precision Castparts, given the growing demand for Boeing commercial airplanes. Boeing expects U.S. and Canadian airliners to invest about $700 billion for fleet extension over the next 20 years.
Further, Boeing has also secured huge orders from Jakarta-based Lion Air and expects strong demand coming in from the Middle East during fiscal 2012.
Therefore, the acquisition of Centra further grows the company’s presence in the fragmented aerostructures market. In addition, as Centra already has an established market share in the growing commercial aircraft programs, such as the 787, 777, 747-8, and A380, which is in perfect alignment with the existing aerostructures operations of Precision Castparts, there is the potential to pick up some market share.
The company is expected to report its fiscal 2012 financial results on the 17Th of this month and we expect it to have yet another quarter of positive surprise in terms of both the top line and bottom lines. The Fasteners segment should be particularly strong, driven by the 787 volumes and the accretive benefits of Primus acquisition. Precision Castparts currently has a Zacks Rank of #3, which implies a short term Hold rating.
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