Avation Share Discussion Threads

[carcosa] 07/9/2017 11:59

To be fair the NAV took a large hit with the 6 ATR disposals. I suspect the revaluation is applicable to the A320 older aircraft.

As previously flagged, the tax rate for the Singapore Aircraft Leasing Scheme has reduced from 10% to 8% and that probably accounts for the low tax charge this year.

Am more sanguine regarding the NAV going forward because that may significantly change over the coming months. Wide-bodies aircraft yields are higher than narrow bodied and it offers the potential to accelerate growth. Debt costs are lower too; particularly with the good credit rating Avation have obtained. It's also easier to get aircraft credits on wide-bodied aircraft. IF Avation can get a couple of theses aircraft on their books then it will have a considerable positive impact on NAV this time next year. Hopefully the webcast will discuss this further today.

[ragehammer] 07/9/2017 11:46

The narrative all sounds quite good, but NAV per share has only increased by 3% to $3.21 from $3.11. This is despite reported EPS of $0.36. There are three key reasons why:

1. Issue of new shares, about 5m shares or 9% over the year. Majority of these were in the placing or for warrants where cash was received in, between 135-155p per share on average. So some dilution there as overall NAV is up 13% but NAV per share is only up 3%.

2. There is a $5.6m hit to revaluation reserves (distinct from the aircraft which were sold). I believe this must be a reversal from where they previously revalued aircraft upwards. Normally downward revaluations (i.e. impairments) would flow through the P&L and hence EPS, but reversals of previous increases go back through OCI and reduce the previously created equity reserve. If there are going to be revaluations up and down going forward then there is even more reason to focus on NAV per share (plus dividends) rather than EPS as the measure of return to shareholders.

3. They appear to have accounted for two dividends in one year. The statement of changes in equity shows dividend paid of $1.8m and dividend payable of $3.7m. Personally I believe it is incorrect treatment in the latter case as the 6 cent dividend was declared as an interim dividend and therefore should be accounted for in the period when paid, i.e. Aug so H1 FY18. They've accounted for it early, so just a timing issue but that's a further hit to NAV per share.

[carcosa] 07/9/2017 08:03

Today, Avation released it's FY prelims.

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 less that 8 years old, is a multiple of that obtainable from ATR's and indeed narrow-bodied jet aircraft.

Interesting to note that for the first time Avation have not split out asset valuations between jet and turboprop aircraft (or may have to wait for the annual report for that detail).

The 'real' measure for share price valuation is the book value/share which stands at $3.21/share
Current share price in $ terms is ~246p which is marginally below yesterdays closing price. However a fair view is that the share price should be a multiple of the book value.

Going forward however, the loss of lease revenue from the now sold 6 ATR's is going to substantially decrease lease revenue and aircraft asset valuatoin next year. However it is in the nature of their business to aquire further aircraft and if they announce additions to the fleet within the next three months then I am comfortable with the current share price.

Questions:
Previous years Avation have shied away from wide-bodied aircraft entering the fleet. In today's prelims there is an indication that they are considering this aircraft type now. Why the change of heart? (narrow bodied valuations too high?)

Why is the tax charge so low? Is this a timing issue?

[catsick] 07/9/2017 07:45

Decent results, still holding excess cash but sounds like they have plans to spend it, steady compounding of book value should continue...

[jamesjoel] 07/9/2017 07:27

Good set of results solid growth
One to hold?

[aim_trader] 17/8/2017 15:58

Richard Wolanski, FD, will be presenting to investors at the upcoming Proactive One2One Forum in London on 7th September. Full details and registration, click here:

[carcosa] 16/8/2017 11:31

Yes. A nine year old A320-200 / D-ABDU/HB-IOR (MSN 3516) leased out until 2021.

Can't see the events at Air Berlin having much impact on Avation in the near term though.

[trytotakeiteasy] 16/8/2017 11:16

Share price seems a bit weak. Any exposure to Air Berlin?

[catsick] 09/8/2017 10:04

Seem to have finally breached 250 now where is that russman .......

[carcosa] 05/8/2017 13:02

An important LOI was recently signed with ATR by Silver Airways for the ATR 42-600 aircraft. The LOI commitment is split between 20 firm aircraft and 30 options with the ability to swap up to the ATR62-600's. First delivery Q4/2017. This is important for ATR due to the fact Silver Airways is US based and the last time ATR won an order there was 20 years ago.

The environment is moving toward's the ATR now because the Bombardier Q400 is aging in US service, as are other similar aircraft and replacements will be needed soon.

Link:

Perhaps there will be opportunities for Avation to enter the US market, doubtful but possible. Nevertheless this is positive news for aircraft valuation.

[carcosa] 22/7/2017 06:56

Seems that the 16 year-old Airbus A321-200 D-AIAA (MSN 1607) currently on lease to Thomas Cook/Condor which was due to expire in April 2018 but has recently been re-leased to a new customer is no longer 'up for sale' on the Avation website (

Three possibilities occur to me

1) Just an 'admin' error on the webpage / Unlikely given the very small number of Avation employees

2) New leasing terms are so fantastic the idea of selling it has receded / That goes against the general Avation policy of selling old aircraft.

3) Aircraft has been sold subject to formalities ahead of an RNS / Removing it from the website ahead of an RNS seems a bit pedantic

Selling the aircraft would, presumably, be a lot easier if there is an attaching lease so who knows... maybe we will get an RNS in the coming days?

[sogoesit] 21/7/2017 20:19

Shares Mag has a feature "Searching for Small Cap Value". It quotes a Fund Manager (Ken Wootton of Livingbridge) saying the stock is undervalued trading on a low multiple.
AVAP is one of five recommendations in this feature.

[gold panda] 20/7/2017 13:07

Mandarin ordered 6 ATR 72-600s

hxxp://ftnnews.com/aviation/32676-taiwan-s-mandarin-airlines-buys-six-atr-72-600s.html

I find this part very interesting:

"Besides the contract signing, ATR is also willing to provide engineering and technical support to China Airlines and its subsidiaries to set-up in-house capabilities for ATR heavy maintenance, up to C-checks."

[catsick] 20/7/2017 11:54

Yes, you seem to have a very good understanding of the industry, I think as long as the fleet is 95 percent leased up they will continue to compound nav nicely, I think long term the compounding effect will be very strong, ex div today of 6 cents, jeff must be pretty happy with his 10 million shares now !!

[carcosa] 20/7/2017 06:47

It took them nearly 9 months to place those last 3 ATR's; which is a bit surprising. I also notde they were non-specific regarding the lease length of those latest aircraft; unlike prior announcements. Also the implication is that they are non-revenue earning between factory delivery to AVAP and delivery to the lessee.

Also they have had some older narrow bodied aircraft for sale for a long time now with no progress being made; although the recent extention/new customer of A320/MSN1607 was welcome news although I note they did not make mention of the contingency payment related to that aircraft at the end of its current lease.

Looking ahead to FY 2018 the current fleet would result in about a $5m shortfall in revenue compared to this year's expectation with a substantial reduction in profits. As things stand at the moment P/NTAV is around 1.0 which some would consider is about right.

However between now and June 2018 a lot has to happen to support the share price and that is most likely to be more jet aircraft to up the NAV. Am a bit disappointed that has yet to happen because the last six months or so have been a bit slow; I was hoping once the ATR sale had completed a raft of announcements would be forthcoming but this has not happened. With LIBOR rates creeping up what they do now can have significant implications for re-leasing of aircraft in years to come.

The other item that may assist the share price is an upward revaluation of the current ATR fleet (assuming no change to the Airbus fleet). There is plenty of anecdotal evidence that this is a possibility.

Then, if they ever get rid of the older Airbus aircraft above book value that could dramatically positively affect the balance sheet; but I really wouldn't hold out much hope of that happening anytime soon or if it did the premium might actually be negative/small.

Right now I feel the share price reflects the value of the company but given the results (and why do they have to be issued so late after closing the books??) are due I'm inclined to wait-and-see what they say about the future before considering selling my shares (first bought 2013)

Basically, business as usual.

[harrogate] 20/7/2017 06:17

Yesterday's announcement sounded like good news. They have used their 3 2017 ATR slots, got a new customer and sound positive on their 2018 ATR slots. They also sounds as if jet leases are coming our way. Had a great rune but I see more newsflow driving the price higher. Very positive for the next 12 months here I believe.

[catsick] 19/7/2017 10:22

Three new atr placed which makes 2017 cashflows all locked in, also Taiwanese customer rather than the Iranian we were pontificating over, should all be compounding book value nicely ....

[catsick] 17/7/2017 18:13

Thanks for your comments, that does seem to be the position they are in, doing well but there are a lot of risks around growing/renewing the fleet.

[carcosa] 17/7/2017 12:33

Sorry catsick, can't really comment too much wrt AQZ. They seem to have originated as a small charter operator of F100's in the resource sector. Something that numerous other operators have done and continue to do over the years.

Typically margins can be very high in that sector but highly dependent on ontime performance, safety and compliance; and of course contract renewals. Typically such airlines are amongst the world's safest to fly on. Seems as though they are using that as a base to build a passenger charter operation taking sub-contract work from more well known/public facing airlines where the margins are significantly less.

The problem with these operations by the time they get to 10 or 15 aircraft fleet size is that fuel costs sensitivities and indirect costs tend to negate the advantages of operating what are, in essence, extraordinarily cheap aircraft but high operating cost aircraft. It's all about operating margins for now but as they grow they will need to access a lot of capital to grow the fleet and operating costs.

For example the overhaul cost of a single engine is worth more than the entire value of a F27 or Spey powered F100. I can't recall overhaul cost of a Tay engine but probably around the $1.4m area. A few unexpected engine overhaul events and these sorts of companies go bust and/or start cannibalising aircraft. For longevity see if they have a power by the hour care package with the engine manufacturer (Rolls-Royce in this case). If they do then there annual costs are predictable for the next ten years plus as RR take on all the capital risk; at a price.

In summary, when things are good in the industry companies such as these can do very well but lose a couple of contracts and they can easily go bust.

[catsick] 17/7/2017 11:48

Carcosa you seem to have very good industry knowledge, I would be interested to hear your opinion on AQZ in australia if you know of them, a small fleet operator of fifo planes to mines, they have the same background to AVAP they fly mainly fokkers which avap have just exited.

[carcosa] 16/7/2017 08:07

Articles echos pretty much what I said here

Should be noted that it is highly unlikely that Avation will ever be in a position to provide lease aircraft in China.

Also it seems that Avation are indicating modest new leasing activity in the ATR market from now until 2018; eight aircraft only (two to be delivered by end 2017).

Would be good to know how the ATR production slots are allocated. i.e. does each production slot have a time-frame in which the order must be placed; those slots would presumably be worth quite a bit of money by now given the ramp up in aircraft demand; say $200k profit/slot?

Seems more likely they will start to pivot more toward the narrow body jet engine market and personally I would like to see something substantive regarding that being announced very soon. It has been relatively quiet on aircraft acquisition and disposal activities in recent months. I had expected something to have been arranged/announced very quickly post ATR fleet sale.


Whether the market will value Avation on a NTAV basis remains to be seen. If it does not then on a simple P/E basis the shares will seem a bit rich following the fall in revenues post ATR sale and assuming no further fleet activity over the next 18 months(highly unlikely).

[sogoesit] 15/7/2017 22:27

IC article:

Avation primed for take-off

The pre-close trading update from aircraft leasing company Avation (AVAP:220p) is well worth noting for several reasons, not least because the board has announced a 85 per cent hike in the full-year payout to 6¢ a share, materially higher than the 3.6¢ forecast of analysts John Cummins at house broker WH Ireland, and a sum worth 4.65p at current exchange rates. The payout goes ex-dividend on Thursday 20 July.


The board can certainly afford to be generous as they have just delivered a 32 per cent increase in aircraft leasing revenue to $94m (£73m) in the 12 months to the end of June 2017, a performance that supports WH Ireland's expectations of an 18 per cent rise in pre-tax profits to $21.5m to produce EPS of around 25.7p based on an average exchange rate of £1:$1.268. The company has also just completed the sale of six of its existing leased ATR 72 aircraft to a single commercial lessor, Chorus Aviation Inc. (TSX: CHR), in a transaction pitched at a premium to book value - and one that released $31m (£23.8m) in net cash proceeds. The gain on that disposal also supports further upside to WH Ireland's spot book value estimate of 310¢ a share, a sum worth 240p. This means that Avation's shares trade on a discount to conservative-looking book value, on a modest 8.5 times earnings, and offer a 2.1 per cent dividend yield. That's cracking value in my view and the investment case becomes even more compelling once you consider recent developments in the ATR market.

That's because at the end of last month, aircraft manufacturer ATR signed a Letter of Intent with Sha'anxi Tianju Investment Group for the purchase of 10 ATR 42-600s to develop a commuter service in Xinjiang, China. The first deliveries are expected to start as soon as possible in 2018. Avation's finance director Richard Wolanski told me that "this is likely to have a bigger impact on Avation and the value of our forward order and ATR option book (38 positions in total) than either of the Indigo or Iran deals", both of which I outlined in my last update when I rated the shares a buy at 203p ('Five small-cap opportunities', 23 May 2017). He has a point as improving connectivity between smaller towns at the lowest operating costs is now a key priority of the Chinese government, so much so that a 'Belt and Road Initiative' has been launched to improve infrastructure, thus supporting economic development and increasing the demand for air transportation.

Bearing this in mind, Mr Wolanski points out that "over half of routes in China carry 100 passengers or less, which is the key market for the ATR with its 42 and 72 seat offerings, so the opportunity in China is for potentially 100's of aircraft". ATR aircraft are widely recognized as the most fuel-efficient aircraft in the regional market, especially for the short-haul sectors. He adds that "essentially Iran, Indigo (and other Indian demand) and the opening of China all represent the same thing, huge new demand for the ATR aircraft which is in limited supply with only 85 units being produced each year". In turn, this demand supports the opportunity for Avation, which "is the lessor that has the largest holder of ATR options and orders at the current time".

In other words, if demand in China takes off, as seems highly likely, then Avation's portfolio of planes and options is set to become even more valuable. In the circumstances, I am upgrading my fair value price target from 250p to 275p and now rate Avation shares, which have been taxi-ing below May's all-time high of 231p, a strong buy ahead of the full-year results on Thursday 7 September.

[manrobert] 11/7/2017 13:43

rated a strong buy and target raised to 270

[harrogate] 11/7/2017 12:57

Hi. Does anyone know what the IC article says? Thanks very much