Avation Share Discussion Threads

[russman] 09/9/2015 12:36

I like the AVAP business model even with the perils of lease accounting. It is the lack of attention to the small details and CLA which are flying me to distraction.
If Jeff got his geese in a line, AVAP may fly higher.

[trytotakeiteasy] 08/9/2015 22:48

harrogate - I understand these issues... however, does it negate the overall investment case? There are things that I don't understand and am slightly frustrated about... such as Capital Lease Aviation which I really don't see what is happening with.... however, the overall investment case still remains sound for Avation in my view....

I think a number of issues have been the cost of growth... such as the bill for launching the medium term notes....in a couple of years time these won't be in place....or at least not to the same extent....

[harrogate] 08/9/2015 17:39

The issue is that the policy you detail above which I agree is industry standard was not AVAPs policy until last year when they changed to it. So the worry is that there are other aircraft sitting above true value because the old policy was not aggressive enough. I think it was straight line over 30 years - That was not the reason behind the CLA plane suffering a loss - that was aircraft specific and if you run the numbers the difference at 25 years between the 2 policies is pretty small although the old policy produces higher book values at 25 years.

[ragehammer] 08/9/2015 17:29

The depreciation policy is fine and absolutely in line with industry standard. This is what Aercap's policy is from their annual report: "Flight equipment is depreciated to its estimated residual value using the straight-line method over the assets’ useful life, generally 25 years from the date of manufacture...The current estimates for the residual values of most aircraft types are 15 percent of original manufacture cost, in line with industry standards."

This is AVAP's policy so I think people are barking up the wrong tree just because a very old, early-build A320 was found to have an engine defect and this knocked a bit (<20%) off its residual value.

[trytotakeiteasy] 08/9/2015 16:16

Interesting conference call. Despite being a frustrated follower I think the overall valuation case is positive. There are always small technical issues, misunderstandings etc (i.e. depreciation rate, loss on sales). At the end of the day the track record and prospects are strong and the valuation is low. A basket of stocks like this will do well even if any one of them could fail.

[russman] 08/9/2015 12:52

Yes the sale is significant to CLA not AVAP.
The new FD brought AVAP depreciation policy to CLA last year; does it work.
Not sure this result actually fits with Jeff's dividend criteria. Not sure which year the proposed interim dividend is for. Not sure which year this book loss falls in either.

[sogoesit] 08/9/2015 12:50

ST in IC has a write-up today which concludes as follows:
"Strong earnings growth trajectory

To put the likely growth rate into perspective, analyst Ian Berry at broking house W.H. Ireland expects Avation’s revenue to rise from $60m to $70.5m in the current financial year to end June 2015 to drive up pre-tax profits from $15.5m to $23.6m. On this basis, EPS rises from 26.1 cents (17.1p) to 38.4 cents (25.2p) and should enable the board to increase the dividend to 3.3 cents (2.2p). This means the shares are trading on only 7.5 times historic earnings, falling to 5 times in the current year, on a 16 per cent discount to book value of 151p, and offer a dividend yield of 1.5 per cent, rising to 1.7 per cent. That’s hardly punchy for a company predicted to increase EPS by almost a half in the coming 12 months. It’s also well below the ratings of major US peers (6 to 11 times earnings estimates, according to Mr Berry).

True, Avation shares are below my original buy-in price of 159p ('Get on board for blue sky gains', 11 September 2014), and have yet to hit my 200p target price, having peaked out at 182p last November. They have also fallen 10 per cent since I updated the investment case at 142p in February. However, I still feel they are grossly undervalued. In fact, I have more confidence in the company hitting 2016 fiscal earnings estimates now than when I recommended buying a year ago. So although the holding has yet to reap the predicted returns I envisaged I am keeping faith.

Interestingly, from a technical perspective, the sell-off from June appears to have run its course: the shares are at the 120p support level dating back to last February and November, there is positive divergence on the daily chart, and the 14-day relative strength indicator is very oversold. On a bid-offer spread of 123p to 127p, I rate Avation’s shares a medium-term buy offering significant upside potential."

[trytotakeiteasy] 08/9/2015 08:35

harrogate - agree shares appear cheap... however, they missed forecast profits for last year.. didn't do a full year trading update....I don't understand the situation with Capital Lease.... profits this year will be hit by the funding costs for this US$100m unsecured medium term note....

So while the stock is cheap this seems like a company that over promises and under delivers.... will still probably do well given the valuation but management credibility is somewhat lacking...when management/brokers give an impression that is different to reality I think it is worth taking note of...

interesting looking a the write-ups to last year's results... "earnings expected to soar by a fifth this year"...... in reality earnings fell..... if they can't even plan one year ahead you have to be a bit concerned...

[harrogate] 08/9/2015 06:29

Surely it is not that difficult to book the impact of a transaction that takes place in Sept in the June numbers if that transaction was being worked on for a while. I think you are looking for issues that don't exist. The shares are now at 80% of NAV and they have 10 new aircraft in the next FY with WHI saying EPS of 38c and 51c for 2016 and 2017 and a price target of £2.06. It seems to me that if you believe they will do those numbers and grow at that rate they are a buy at this level but if you don't like the way they operate and believe Richard as FD is too promotional for example then sell and move on - I have quite enough of these for now but I do expect them to perform and hit the numbers. I saw new signs of clarity in the year end report and the webcast of the results which I can't make today is another sign - and it will be on the website afterwards. Good luck

[trytotakeiteasy] 07/9/2015 20:36

What exactly went wrong at CLA? They have the same chairman as this company

[russman] 07/9/2015 19:27

I am still trying to get my head around CLA's A320 book loss which they announced on 3/9.
On the 7/9 AVAP have included this loss in their annual figures to 30/6.
I can only presume that the transaction took place before 30/6 & it took over 2 months to announce it.
This is going to make a great presentation.

[jamesjoel] 07/9/2015 17:20

Amazing how the negative posters have not commented about the 49% increase in the dividend have u got an hidden agenda

[tailgunner2] 07/9/2015 14:23

The way I read it is a drop in profit of 1m, but company give good reason for it, and don't appear to hide anything...... Overall, I'm happy to stay invested here.

[trytotakeiteasy] 07/9/2015 13:25

Results aren't a disaster just not the sparkling growth story it was made out to be..... forecasts for profits growth haven't been realized... just a lot of excuses...

[deanowls] 07/9/2015 10:26

I think they did flag up the upfront cost of raising the bond and that it would impact on profits this year, unless my memory is confused with something else, will have a look later.

[pj 1] 07/9/2015 09:49

They made an horrendous mess announcing half year results, whilst referring to continued earnings growth. Then miss on earnings with no forewarning.

Credibility issues now imo

[trytotakeiteasy] 07/9/2015 09:42

on first glance the results appear disappointing.... and don't appear to match the bombastic confidence in Avation's investor presentations... seems to be a case of jam tomorrow in terms of profits growth.... cheap stock provides some downside protection..... but still disappointing on balance...looking ahead and in a couple of years it is hard to see the share price where it is today...but the cost of growth is suppressing profits for the time being..

What I don't like is the long list of excuses for the weak profits result.... and the poor shareholder guidance.... I don't understand why this Finance director can't give a clearer picture rather than hyping up the story at all these investor events...

Discount of 20% to book value at June 2015 looks harsh.... but given recent poor communications and the profits fall it is understandable...

Always seem to get jam tomorrow messages from the company... lots of growth but without profits growth.... frustrating but stock still appears cheap

[expatken] 07/9/2015 09:03

Can't help thinking that this share suffers from retail investor short termism. AVAP trading at P/NTAV of ~0.8, with 10 aircraft to be delivered in the current financial year with a purchase value (cost?) of approximately $280 million, which represents growth of 48 per cent on the fleet assets for FY2016

This company is still in its early growth stages.

$100m bond a drag on earnings until its deployed. Aggressive growth whilst lowering cost of capital.

If investing based on P/E alone (perhaps that is where retail investors are concentrating their minds?) then I understand this mornings' price action but investing on the basis of NAV is probably the way to go.

Cost of debt is heading in the right direction - but of course, subject to interest rate environment.

On the Macro scale, as AVAP increases in size then potential take-over target in 3 years or so?

Good to see CLA out of the picture (completely?)

WH Ireland have FY16 EPS $0.38 versus consensus $0.34.

Obviously I am talking my own book here as I have a relatively large investment in AVAP but my expectations concentrate on fleet growth.

One concern I do have is how long the Singapore tax break lasts; I have a vague idea it expires in a year or two?

[srichardson8] 07/9/2015 08:22

My quick fly through on the figures gave a +ve impression. The absence of the $3.3mn profit on ordered aircraft sales from 2014 seems the big difference to me, otherwise trading currently good. Still slightly concerned that the depreciation schedule is too long and not declining balance (I seem to remember)which would not be helpful in a turndown. And perhaps a higher quality of customer might help but I suppose they are niche.
I just took the book value quote on Avolon from the FT Lex article.

[trytotakeiteasy] 06/9/2015 22:42

We are now well below book value....will be approaching a 20% discount at the end of this year....

[briangeeee] 06/9/2015 21:07

I thought Avolon was about 1.15 x book.

[russman] 06/9/2015 20:51

If anyone is interested in a job lot of ATRs, they know who to call.

[srichardson8] 06/9/2015 20:20

Avolon: short haul (precis FT article)
Headline from week-end Lex column on Bohai purchase of Avalon, private equity aicraft lesor.
Price (3% drop to previous offer reasonable given 15% drop in US rivals over same 2 week period)
Valuation x1.7 book, not bad given rival Air Lease trades almost at book
Timing - opportune. Net interest margins historically high, airlines purple patch, Asian growth of aircraft leasing to continue.
BUT commercial aviation will be forever cyclical and
Bohai brings scale - parent owns several airlines and has revs of $25bn - significant in a capital-hungry industry where two biggest players are orders of magnitude bigger than everyone else
More deals likely among the smaller leasiung companies