Small Cap Value Report (26 Oct 2016) - OTB, AVAP, PVCS, EPO, FLYB, CAU

Wednesday, Oct 26 2016 by

Good morning!

I had a late surge yesterday, and added several more sections to yesterday's report - so here's the link for that, to get you started whilst I'm busy writing today's report!

I added sections on;

Braemar Shipping Services (LON:BMS) - good reasons to expect earnings to recover somewhat, but not strikingly cheap. Divis look unsustainably high.

Pendragon (LON:PDG) - very good update. Looks dirt cheap, but what impact will price rises have next year?

M P Evans (LON:MPE) - unsolicited bid approach.

OTB - On the Beach

Unfortunately, the technical gremlins struck, and the section on OTB vanished.  However, to recap, all I said was that it's worth a look. The company (an online travel agent, specialising in short haul beach holidays) delivered 12% turnover growth, but increased profits further by restraining its marketing spend.

The valuation of OTB looks quite appealing, although as with most retail or travel-related companies, the market is naturally worried about the impact of weaker sterling. I've put OTB back onto my watch list, but am holding back on buying shares right now, as the price/chart look rather weak.

My feeling is that Brits will still want our summer holidays abroad again next year, despite stronger sterling. We just might trade down to a cheaper destination, and perhaps trim back on luxuries such as eating out - e.g. I often take a few packets of noodles (18p each from Aldi) with me in my suitcase, when holidaying.

So bombed-out holiday company shares might be worth considering, who knows? Especially something like OTB, which seems to be gaining market share from conventional travel agents. Anyway, I'll give it some more thought, haven't made my mind up yet about that one.

Avation (LON:AVAP)

Share price: 161p (up 5.9% today)
No. shares: 58.9m
Market cap: £94.8m

Possible sale of aircraft - an intriguing announcement this one.

Here's an edited version, of the key points;

Avation PLC (LSE: AVAP), the commercial passenger aircraft leasing company advises that it has received an expression of interest for the purchase of its current portfolio of ATR turbo prop aircraft. The company will evaluate the expression of interest in due course and emphasises that…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>

Do you like this Post?
54 thumbs up
0 thumbs down
Share this post with friends

Avation PLC is a United Kingdom-based company engaged in leasing of aircraft. The Company is a commercial passenger aircraft leasing group managing a fleet of 47 aircraft, which are leased to airlines globally. The Company's fleet includes Airbus A220, A220-300 A320 and A321 narrow-body jets, Boeing 777-300ER and Airbus A330-300 twin-aisle jets, Boeing 737-800 NG, 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 »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

PV Crystalox Solar PLC is a supplier to the photovoltaic industry, producing multicrystalline silicon wafers for use in solar electricity generation systems. The Company's three-stage production process includes Ingot production, block production and wafer production. The Company's subsidiaries include Crystalox Solar Limited and PV Crystalox Solar Silicon GmbH. The Company operates in Japan, Taiwan, Canada, Germany, the United Kingdom and Rest of Europe. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

On the Beach Group plc is a United Kingdom-based online travel agent. The Company operates in two segments: Core and International. The Company's core segment conducts its activity through the United Kingdom Website (UK). The Company's international segment conducts its activity through Swedish Website ( The Company is an online retailer of beach short-haul beach holidays, primarily targeting customers in the United Kingdom under the On the Beach brand. The Company's technology platform enables customers to package the constituent components of their holiday (including flights, hotels and transfers) to build custom-made holidays from a range of flight and hotel combinations. The Company offers customers a range of flight and hotel products bookable through online channels (including by desktop, mobiles, tablets and applications) and over the phone. The Company's subsidiaries include On the Beach Beds Limited and On the Beach Travel Limited. more »

LSE Price
Mkt Cap (£m)
P/E (fwd)
Yield (fwd)

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

18 Comments on this Article show/hide all

Carcosa 26th Oct '16 1 of 18

Avation (LON:AVAP) Am guessing it may be Nordic Aviation Capital that want to acquire the ATR turboprop fleet because it will then give them a great deal of pricing power especially when they start to make sales into China for the first time (and also maybe the Iranian deal). When you become effectively the only lessor with an in demand aircraft it makes sense (to me). However nearly all of those AVAP ATR aircraft are on 6+6 year leases so any lease increments are years away but nevertheless there different accounting policies may make it sensible for them to acquire the aircraft above book value.

However, for AVAP to get rid of their ATR fleet is something I am not entirely comfortable with (and it will go to a shareholder vote). That reliable income stream will disappear, relationships with financiers will change, I guess the corporate GMTN bond risk increases somewhat and may make it more expensive for AVAP to raise future capital?

According to my own figures the ATR fleet in question has:

Current Estimated NBV
Loan to Book Value
Outstanding Loan 

So the substantial premium would have to be 10-20%? giving Net cash of ~$100m. Not bad for a ~$115m market cap. 

I find it hard to imagine anyone paying that sort of premium; maybe 5-10% but not much more. And then we are left with AVAP with its heart cut out holding very valuable A320 assets which makes the company more risky. 

AVAP would end up with 12 x A320/321's and not much else (F100's and ATR finance lease aircraft)  generating ~$45m annualised revenue compared to around ~$100m otherwise.

If AVAp can secure a large premium to the NAV then they are going to have to explain it's longer term impact before they get my vote. Prior to this deal the shares are ridiculously cheap and today's announcement would have to increase the share price by 50%+ before they would get my shareholder vote; and that ain't going to happen.

| Link | Share
mikelevie 26th Oct '16 2 of 18

Hi Paul, seen the RNS about CEO stepping down at £FLYB?

| Link | Share | 1 reply
tabhair 26th Oct '16 3 of 18

Going back to yesterday, I took a quick look at Carpetright (LON:CPR) this morning. It's a share I never really looked at previously due to the eye-watering valuation that it commanded. That's obviously changed a lot as the price has crashed below £2. I can't say the collapse is surprising, or even unjustified. Their fall in like-for-like sales in the UK when competitors like SCS (LON:SCS) and United Carpets (LON:UCG) are both increasing their own LFL sales indicates that there's something going wrong operationally at the business.

At this point, I think it's all down to management and can we trust their turnaround plan. Has anyone got their ear close to the ground on this one? Are management credible, are they doing the right then?

| Link | Share
JohnEustace 26th Oct '16 4 of 18

Re Avation (LON:AVAP), the aircraft are potentially worth more than book value if Avation use a conservative depreciation policy. From memory of one of their presentations the planes will continue to produce income for some years after Avation have fully depreciated them. If that is the case and Avation have a bid significantly above book value then that could be an argument for them to sell, or if not adjust their depreciation policy to reflect a longer asset life and therefore a higher current book value.

The aircraft are a type that is much in demand in the industry.

Edit: I agree with Carcosa that it would take out the heart of the company. I might support a full bid at the right price but not this approach.

| Link | Share
Paul Scott 26th Oct '16 5 of 18

In reply to post #155944

Hi Mikelevie,

Yes I saw the RNS about Saad Hammad stepping down from CEO role at Flybe (LON:FLYB). That was next on my list to write about - have added a short section above. It doesn't look good, does it?

Regards, Paul.

| Link | Share
grumpy5 26th Oct '16 6 of 18

Re AVAP, Paul as an (ex) CA you ought to remember that net book value need not necessarily equate to market value! :-)
Does the company have any delivery slots that would also add to its residual value after the ATR fleet has been stripped out?

| Link | Share | 1 reply
mikelevie 26th Oct '16 7 of 18

Thanks Paul, no not good at all. Wonder if we're into takeover territory now (he says in vain hope).

| Link | Share
WatsonNimrod 26th Oct '16 8 of 18

The problem is who would actually want to buy FlyBe?

Surely not Ryanair or EasyJet who have built their strategy around 1 type aircraft fleets? Why would they want to take on smaller aircraft types serving routes which are not viable on their larger aircraft (often not viable on the DHC-8-400).

If you take a look round the aviation industry who would want to buy them?

| Link | Share
mikelevie 26th Oct '16 9 of 18

Like I said, vain hope.

| Link | Share
Carcosa 26th Oct '16 10 of 18

In reply to post #155962


Avation (LON:AVAP) have nine new ATR72's for delivery between 2017-2019 plus options for an additional 27 aircraft. There is some discussions that two new production slots, will be sold before year end. Although the value of sold production slots can be highly variable I estimate a typical 'profit' is circa $345k plus the return of a deposit of around $100k for the production slot. However in the past they have realised a profit far in excess of $1m on occasion but I think this is unusual.

Although AVAP are committed to various production dates, ATR are generally very flexible for anything 6+ months ahead.

The market value of the aircraft would likely be increased if the China market is cracked (ATR are currently marketing the aircraft there) and in the shorter term if Iran get the American Export licenses and finance sorted out then there order for 40 aircraft asap will make those production slots more valuable.

| Link | Share
bobo 26th Oct '16 11 of 18

Flybe's pricing has always been high, but the good thing is you get from some out of the way place to another. Trouble is the market is always limited. So wrong business model for the times

| Link | Share
pierotlunaire 26th Oct '16 12 of 18

The EPO market cap is wrong on Stockopedia. More like £75m so with £14m of cash just now, this is £60m EV and if they do £30m of transactional revs next year, this would put it on 2x revs. Q1 has 2.3m transactions at the average £3.12 per tx, so revs of £7.8m ish which seems to support a decent uptick in revs for 2016/17. EPO is the only player in the end-to-end processing of global small payments and is increasingly winning business from decent banks and also e-commerce companies in a huge market. I appreciate they have never done their numbers, but as a former professional VC, I wd attest to the fact that no developmental stage company ever does do aspirational numbers. Management have asserted in their plan that getting to cash breakeven by late 2017 (I think their year not calendar) with £10-11m left over is sacrosanctn (per today's analyst conference) so I don't see that a further equity raise is likely. What is this company worth when nit gets past cash breakeven with £30 or £40m of highly valuable transactional revs? In the US, where there a lot more comps in SaaS and transactional business modesl, the answer is 5-10x revs. So today's £75m could be worth £200-400m down the track. So 3-5x from here in a business model which is increasingly performing, doesn't require more financing (I hope) and is the sole real player in this part of the payments processing world? I appreciate that this is a VC type analysis (ie growth focussed) and not your typical "value" analysis but you need a bit of both in a portfolio and there aren't many 3-5x ers around on the London market.

| Link | Share | 1 reply
Paul Scott 26th Oct '16 13 of 18

In reply to post #155989

Hi pierotlunaire,

Points taken. However, my main gripe with Earthport (LON:EPO) is that it has been promising great things, with essentially the same narrative now for 15 years! It's never achieved anything worthwhile in the past, and every year they tell us why it will be different this time, but it never is!

Re the number of shares in issue being incorrect, it looks like you're right, I've amended the article. Also, I've raised a support ticket so that Stockopedia can flag the data error with Thomson Reuters & get it corrected. Thx for pointing it out. Apparently we at Stockopedia are one of the top customers for cleaning up Thomson Reuters data errors. Maybe they should be paying us, not the other way around?!

Regards, Paul.

| Link | Share | 1 reply
pierotlunaire 26th Oct '16 14 of 18

In reply to post #155992


It's been a bumpy ride with some not very good directors during this period. I think I also had to put money into a cram down round here to avoid being wiped out. However, you shd not tar the current CEO with a 15 year brush. He has built a much stronger team around him and won lots of pretty fine clients. He has of course also missed his numbers but has raised enough capital(at 42p) to get through to cash breakeven and with a 70% gross margin, if they do £30m revs, the extra £8m will reduce losses by £6m etc etc. Having sold in the 40ps when Oppenheimer recapitalised the company, I'm in the unusual position of being able to replay the game with a much stronger team.

| Link | Share
Jardine 26th Oct '16 15 of 18

It seems to me Avation (LON:AVAP) have a funding problem. Their loan to value ratio is at 75% which is probably the maximum they can get away with. Their share price is derisory so a placing is probably out of the question. Interestingly at the start of October they did a very small placing of about £5m. I wonder of they tried to do a larger one and didn't get enough takers? That puzzled me.

So perhaps the only solution is to make more effective use of the capital base they already have. At 30 June they had $48m in the bank, which when you are buying aircraft probably isn't a lot.

| Link | Share
Aislabie 26th Oct '16 16 of 18

AVAP has been unable to get the stockmarket to reflect the earning value of their business and I am sure it is deeply frustrating - in fact the CFO said as much in the recent round of briefings.
But lessors know the real value and by letting one demonstrate it they get a proper value for shareholders and a chunk of cash to decrease borrowing (which in this case with matched earning assets should never have worried the market anyway) and move their business further into higher value jets.
One point that also came out of recent presentations was that institutions were holding back until AVAP had a $100milion market cap. I suspect at that the sale will reveal much more than a 10% uplift to book value and pull up their market cap

| Link | Share
stocko12345 27th Oct '16 17 of 18

Flyb look attractive with so much cash, they can become very profitable very quickly with the right actions. BUY

| Link | Share | 1 reply
cig 27th Oct '16 18 of 18

In reply to post #156079

Isn't most of the cash coming from fares already paid for booked flights?

| Link | Share

Please subscribe to submit a comment

 Are LON:AVAP's fundamentals sound as an investment? Find out More »

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 »


Stock Picking Tutorial Centre

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis