Small Cap Value Report (20 Feb 2015) - AVAP, PINN, MAR

Friday, Feb 20 2015 by

Good morning! I was settling down to my evening meal last night, when the phone rang. It was the CFO of Avation (LON:AVAP). I had been rather negative about some aspects of the company's interim results statement, so he wanted to chat through the numbers and clarify a few points. It's always slightly awkward when I've been critical of a company, and they then get in contact, but it happens quite a lot, and as long as my criticisms have been fair, then I stand my ground.

In this case, the CFO was refreshingly honest, in saying that my criticism was fair, and that he took full responsibility for not explaining the numbers clearly enough in the narrative to the results statement. I should emphasise that no new information was given to me, but he did explain the way in which rapid growth in the aircraft fleet had skewed the figures somewhat.

So what originally looked like a big miss against forecast, will probably turn out to be reasonably alright, as the H2 numbers are expected to be stronger than H1, due to H2 containing a full 6 months income on the newly leased aircraft - and with the operational gearing of more income flowing through a fixed cost base that should boost H2 profits vs H1 profits. Sounds reasonable to me.

Rather than repeating it all here, I just want to flag up that I added a new "Update" section to yesterday's report, explaining what was said on my phone call with the CFO. So for anyone interested, that is in yesterday's report, in the Avation section, just below the chart.

I like talking to company management, as it helps me understand the business better. Although some scepticism is necessary, as obviously they will always talk up the company's performance and prospects - that's part of their job!

I'm reassured that my decision to buy a few more Avation shares yesterday morning was probably a sensible one, but time will tell.

Pinnacle Technology (LON:PINN)

This is only about a £3m market cap, so I won't spend more than a few moments on it. There are hardly any results out today, so I've had a quick look at this micro cap's results for the year ended 30 Sep 2014.

The results are absolutely terrible! A £1.9m loss, on…

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Avation PLC is engaged in leasing of aircraft. The Company is a commercial passenger aircraft leasing group managing a fleet of 38 aircraft, which are leased to airlines globally. The Company's fleet includes Airbus A220, A320 and A321 narrow-body jets, Boeing 777-300ER and Airbus A330-300 twin-aisle jets, ATR 72 twin engine turboprop aircraft and five older Fokker 100 jets. It supplies regional, narrow-body and twin-aisle aircraft to the airline industry. It serves the commercial airlines. It owns, through its subsidiaries, a range of commercial passenger jet aircraft, which are leased to various airlines in Europe, Asia and Australia. The Company's subsidiaries include Avation Capital S.A., which is engaged in financing, and Capital Lease Aviation Limited and MSN429 Leaseco Limited, which are engaged in aircraft leasing. more »

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Adept4 Plc, formerly Pinnacle Technology Group plc, is engaged in the provision of information technology as a service (ITaaS) to the small and medium-sized enterprises in the United Kingdom. The Company's segments include Product, Recurring Services (Service), Professional Services (PS) and Plc costs (PLC). The Product segment consists of the resale of hardware and software information technology (IT) solutions from technology vendors across its product portfolio. The Service segment is engaged in the provision of ongoing, recurring ITaaS across its range of solutions under a contractual commitment or repeating monthly billing. The PS segment is engaged in the provision of consultants and project managers to consult, design, install, configure and integrate IT technologies and service desk provision. The Company offers various services, including cloud services, on premises services, managed backup, user services and support, software development and infrastructure consultancy. more »

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  Is LON:AVAP fundamentally strong or weak? Find out More »

11 Comments on this Article show/hide all

pkarnezis 20th Feb '15 1 of 11

That Avation (LON:AVAP) phone call to Paul is a bit like an author calling the reviewer who gave them a bad review to explain why their book is good, really (apparently, Salman Rushdie does that a lot).

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Paul Scott 20th Feb '15 2 of 11

In reply to post #92645

Hi pakarnezis,

LOL! In fairness though, the CFO of Avation (LON:AVAP) did say that he was ringing round various commentators, investors, analysts, etc, and people who had established contact with him at previous meetings, and investor events in 2014, such as my Brighton investor event, where he gave us a presentation last year.

So it was very much a case of, ooops we've screwed up here & not communicated the results at all well, so I'd better get on the phone & sort things out!

As I said to him in our call, what the hell are their broker & PR people doing for their retainers? They seem to have been totally useless in this case. CFOs need help with how to present the figures to outside investors, as you need a fresh set of eyes on everything, where the people who manage the business day-to-day are usually too immersed in the detail.

It's refreshing to get a call from a CFO who owns up to having made a mistake, and wants to put it right. Rather than calls I sometimes get from companies, who try to lead me up the garden path, trying to say that everything is great when it patently isn't. Don't worry, I have highly sensitive BS radar!!!

Regards, Paul.

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Welshborderer 20th Feb '15 3 of 11

In reply to post #92660

Oh dear, are we imminently to see him replaced? Is this the reaction after being hauled over the coals by an irate CEO?

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ericb 20th Feb '15 4 of 11

thanks for the late update Paul

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Heisenberg 20th Feb '15 5 of 11

Mar City - agree with the comments above.

Also where is the FD?

It seems the previous FD left at the end of last year... not a good time to have no FD.

From RNS 13 November 2014:

"We will also be appointing a new Group Finance Director over the next couple of months, who will replace our current Finance Director, Marcus Jones, who is leaving the Company on 31 December 2014 to take up a new appointment outside the house building sector. Wayne Inskip, Finance Director of Mar City Homes Ltd will assist in the interim, as required."

Wayne Inskip's (blank) background can be found here:

It makes you wonder who was responsible, from the financial side, in signing off the Trading Update on 28 January 2015.

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TheMarinersWife 20th Feb '15 6 of 11

I think Paul has covered MAR pretty comprehensively, only omission being no mention of the Bargepole list.

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Paul Scott 20th Feb '15 7 of 11

In reply to post #92696

Hi TheMarinersWife,

Indeed, I was very tempted to add Mar City (LON:MAR) to my bargepole list, but the thing that stopped me was its strong balance sheet. So at some point, there could be a buying opportunity, who knows? Although I would want a seriously deep discount to NTAV to get interested.

Regards, Paul.

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janebolacha 23rd Feb '15 8 of 11

Paul, here's another RNS from AVAP.
Four aircraft leased to Flybe:
Business growing by leaps and bounds.
They really do need a good PR and IR person!

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beatingmrindex 23rd Feb '15 9 of 11

Why would Flybe be leasing planes when they have a few that seem to be grounded and looking to off laod? Any suggestions?

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janebolacha 23rd Feb '15 10 of 11

The E195 is the stretched version of the Embraer range. This is from Wikipedia:

"As the 190/195 models are of mainline aircraft size, many airlines operate them as such, fitting them with a business class section and operating them themselves, instead of having them flown by a regional airline partner.[citation needed] For example, Air Canada operates 45 E-190 aircraft fitted with 9 business-class and 88 economy-class seats as part of its primary fleet. JetBlue and US Airways also operate the E-190 as part of their own fleet thus allowing airlines increased crewing flexibility by having the ability of air crews to work aboard narrow-body or widebody aircraft all the same."

I believe the aircraft are just not the right models for the kind of business and the kinds of routes Flybe operates. They are difficult to sell. Perhaps they are also expensive to operate? In fact, Embraer has only 7 units on order at present. Flybe did have one potential buyer, I believe, but the deal fell through. They did announce plans to use some of them on odd routes (I assume their higher volume routes) this Summer. Whether this leasing means they are anywhere closer to selling the E195 aircraft is a tantalising question.

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Heisenberg 23rd Feb '15 11 of 11

In reply to post #92768

In terms of the orderbook the reason it looks low is because Embraer are on the next-generation of the E195 aircraft type

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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