With this month's company seminar I was pleased to see three familiar companies on the agenda - ones that I'd seen present before. This probably seems a little bit backward as surely I'd prefer to meet some brand-new managers and uncover another undiscovered gem or two? Well, yes, but my problem isn't a lack of investment opportunities; instead it's knowing whether or not companies have decent management who follow through on their strategic plans rather than chopping and changing. So this was my chance, with notes in hand, to hold a few directors to account and find out how well their plans played out.


Richard Wolanski, FD at Avation, has presented to a Sharesoc audience several times now with a consistent message. This is that Avation is, fundamentally, a very simple business: it buys planes in high demand, leases them to airlines for 10-12 years at a 12% yield, leverages the equity that it accrues as leases progress and uses this to buy yet more planes. Beyond the disposal of planes after two or three leases (when the cost of the plane has been returned several times over) and looking for ways to acquire new planes this is broadly all that the company does - which explains why it only has 18 employees or so. To mitigate risk Avation only owns narrow-body planes, such as the ATR-72 and Airbus A321, has 96% of debt secured at fixed interest rates (4.5% average), manages its assets to ensure a very low average fleet age of 2.8 years and has visibility of revenue with an average lease term of 7.8 years. So long as the rental checks arrive every month then there's nothing more to do operationally - and a customer has only gone bust once in the last decade.

So the company is something of a cash-cow and yet Richard remains displeased because, in his view, the shares shouldn't be trading below book value (which they are by 10-15%). The problem seems to be uncertainty regarding the valuation of planes on the balance sheet; all leasing companies have to depreciate their assets appropriately because under-depreciation boosts profits in the short-term but leads to enormous losses in the long-term when assets are written off. Fortuitously the company received an unsolicited offer for their entire turbo-prop fleet (24 planes) in October and this might just provide a benchmark for the…

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