Today, Avation (LON:AVAP) released their FY prelims for June 2017. The delay between year end and the announcement is ridiculously long for a simple leasing company; but at least they are consistent!
Overall the ATR aircraft are once again selling like hotcakes around the world and production slots are likely at a premium. Avation currently holds a number of production slots values in excess of $3m but quite possibly worth a tad more.
Demand for the ATR aircraft has resulted potential and meaningful gains on aircraft sales against their deprecitation book value. As Avation tend not to hold on to old aircraft the industry depreciation rate will continue to hide the hidden value in their ATR portfolio.
This past year Avation were approached by several entities wanting to buy their ATR fleet at a substantial premium over book. Whilst as first glance this sounds an excellent outcome, in practice it would have resulted in the company effectivly going back to 'sqaure one'. A compromise of selling a portion of the fleet was made resulting in a gain of $5.3m or I estimate about 5% over book value; lower than I initially thought at the time of the sale.
Their headline numbers showed:
NB: Items in brackets are (Consensus Forecasts) [My forecasts]
Lease Revenue up 32% at $94.2 million ($94m) [$92.8m];
Operating Profit grew 32% to $60.2 million; [$56.1]
Profit before taxation increased by 18% to $21.4 million ($19.7m) [$24.3m]
Total profit after tax increased 16% to $21.3 million; (19.7m) [$21.9m]
Operating cash flows increased 20% to $63.0 million;
Dividend per share increased by 85% to 6.00 US cents; and
Earnings per share ("EPS") increased by 6% to 36.3 US cents.($0.32) [$0.36]
Other areas of improvement include a lower LTV of 72% and an upgrade in the credit rating. Sitting on a hefty cash pile following the ATR sales too
Of particular interest was their annoucement that they would now start to consider wide-bodied aircraft to be added to the fleet. Thi sis a new development and something that they have shied away from in the past. It suggests that narrowbodied aircraft valuations are high and, although potentially higher risk perhaps the returns from widebodied aircraft are more attactive now.
Certainly lease income form one widebodies aircraft, if…
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"However a fair view is that the share price should be a multiple of the book value."
Not really sure on this. I.e. you are stating an opinion as fact. The other aircraft leasing groups trade at around book value. The return on equity is reasonable at 13.7% for Avation but this is achieved through significant financial leverage which increases the risk profile. The return on capital is 6.3%.
I don't really understand the argument that Avation is worth a multiple of book value. If the group was sold today it would get around book value for its planes. Being worth a multiple of book value is pie in the sky.
