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Premier Exhibitions (PRXI):2Q 2011 Update

October 8, 2010

The second quarter 2011 (August 31st) results have been reported by PRXI. Nothing particularly interesting on the operating side except that higher exhibition bookings were more than offset by lower attendance, perhaps due to the lingering effects of the recession, and the company was nearly break-even on a GAAP basis. You can get the full story from the company’s press release via EDGAR or some greater color from the transcript of management’s 2Q call on Seeking Alpha.

The most important information reported, however, was that Sellers Capital is no longer looking to monetize its stake in PRXI by wind-down of the fund in July 2011. They are not interested in selling at current prices (and apparently can’t find anyone who is willing to purchase their 46% stake at above market prices, strange as that may seem). Although this means that there will be no catalyst for value realization in the short-term, I actually think this is good news because it means that Sellers will remain on the board to guide the company’s capital allocation. I am always a little wary of  ‘story stock’ management; they need to be good promoters for the initial capital raise, but then they begin to drink their own kool-aid and don’t tend to be very shareholder friendly even when they, themselves, are big shareholders. Here, we have the best of both worlds, management with a ‘story’ vision and a great capital allocator and shareholder advocate holding the reins. There was some hint that there might be acquisitions in the near future, but I’m confident that they will be strategic and cash flow accretive given the overall team. I still like the stock and think that there is long-term value that will be realized eventually. You just need the value investor’s most powerful ally – PATIENCE. I will be buying more shares if the price drifts down to the buy targets outlined in my initial post. And, in a way, I am more enthusiastic than ever about this stock because the lack of an immediate catalyst may even allow me to grow my position and average down my cost. I am reminded of something I read recently that resonated with me about a not-too-recent study that Prof. Greewald did on Paul Sonkin’s purchases for the micro-cap Hummingbird Fund. The study found that most of the gains from his positions came not from the initial investments, but from follow-on purchases when the share price had declined dramatically. This kind of investing requires both conviction and patience. I am trying to build both.

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