LON:AVAP | Avation - Prelims 30 June 2018

6th Sep '18 by Carcosa

7 comments 1789 reads

Avation (LON:AVAP) issued their prelims this morning for year ending 30 June 2018. At first reading there are no surprises, other than being stuck with an ATR!

Avation are the only traditional aircraft leasing company listed on the LSE. Having said that, compared to other aircraft leasing companies around the world, both private and listed, they are very very small, which I see as being an advantage.

As an investment Avation will not be everyone's cup of tea. It's a 'dull' business for the average investor. It's also a very long term business. What they are doing now per aircraft may not have a substantial effect for 10 years. They do Sale and Leasebacks with airlines and err that's it. Even their investor presentations are simplified to the point of being, well, too simple! There is a lot going on under the hood though.

Headline numbers have an EPS marginally ahead of forecast, Cost of debt down and a huge increase in fleet assets and a useful increase of 12% in NAV.

The reason to invest in Avation is an expected share price moving in tandem with the net asset value of the company (which primarily means the aircraft fleet). Because the company is tiny compared to its peers it can grow the fleet very quickly and therefore, to my mind, should have a premium rating. The downside pressure is the lower ROE compared to their rivals.

Last year the company had 35 aircraft in service, split almost 50:50 between ATR turbo-prop aircraft and narrow bodied Airbus aircraft. The fleet valuation ('carrying value of aircraft') was $744m. This year they have added a two ATR's, B777, A330 and two A220's (formerly known as Bombardier CS300's). This brought the fleet valuation up to $1.030billion (+38%). It also appears they failed to position the another ATR that was planned to be in service in Taiwan.

This resulted in a NAV of $3.21/share NAV last year as opposed to $3.64/share today. In sterling terms NAV is reported at 276p and the share price at CoB was 227p or P/NTAV of 0.82. Historically a consistent ratio for Avation but really too low considering fleet assets increased by 38% and revenue increased by 16%.

There are a few items that I think investors need to keep an eye on when reviewing Avation:

Unlock with Email

Unlock with Google

Already have an account?
Login here

Wol

6th Sep '18

Thanks Carcosa
A very thorough and helpful analysis of Avation (LON:AVAP).
A good, sound business and a good sound investment.

Aislabie

Thank you for such a thorough examination, I shall be re-reading it to make sure that I get all the points. Regarding the cost of debt, it may be that market rate changes are not immediately showing up since as far as possible I believe the leases are struck at rates that match the borrowing cost to the company and most of this is on fixed rate terms.

Ned Kelly

Many thanks Carcosa, for a very thorough and timely review. I have been a long term holder although reduced a while ago because of the fairly pedestrian ROCE which as you point out is a bit the nature of the beast. It would be nice if the SP could get a bit closer to the NAV though.

Thanks again
Roger

Carcosa

The prelims are short of debt details, unlike prior years. Maybe more in the Annual Report when that is published. Need to see Senior, Junior and the Global Note Programme split.

Rate changes are largely driven by credit rating (hence they cover that in the prelims). personally I do not see that credit rating changes in the near future. They did one deal this year in Euro's too.

Personally, if you look at the revenue run rate there are likely to be some very impressive comparatives to be issued for the next interims as only then will the huge impact from the widebodied aircraft be seen for their first year of operation.

rhomboid1

Thx Carcosa

That’s a really useful detailed summary...I particularly like the counterintuitive aspect that higher fuel costs accelerate fleet renewals thus assisting aircraft lessors

Cheers

Just finished the investor call (available on their website). Couple of shareholder worthy comments:

Avation expecting a 'fully priced, shareholder and credit rating worthy sale of an aircraft (Vietjet A320?) to be completed by end of the year.

Avation to bid for AirBaltic 2019 A220 deliveries.

Desire to expand Narrowbody and Widebody(!) fleet in near term.

Oh, if you ignore any unannounced orders then I estimate revenues this time next year will be up 18% to $129m. Effectively already 'booked' in.

raggedtp

Thanks for your analysis, Carcosa. Much appreciated. Have held for approaching three years, and I am sometimes frustrated by its discount to NAV, but then NAV rising c. 12-14% p.a., plus a now 2.5% div, maybe this is just a long-term hold. Visibility is good and security improving: what's not to like about c. 15% p.a. in a vehicle that is not Brexit-related and will only improve for us if things go bad and £ dips. Perhaps it's safer than houses.

Avation - Prelims 30 June 2018

Unlock the rest of this article with a 14 day trial

About the Author

Carcosa

7 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...