Doric Nimrod 3 Discussion Threads

[hindsight] 21/3/2019 12:44

sf5, ss a non holder, having done some looking, think $30m reidual value and 5% year credit risk seems right for me to buy. Perhaps you could please advise from your spreadsheet what share price that is ? thanks

[belgraviaboy] 21/3/2019 11:55

Sf5 - your concern is valid. If there was zero risk this would not be yielding 10%

You pay your money you make your choice.

Personally I think there will still be A380s flying in 10 years time, but that is only my opinion. There are still brand new A380s being delivered as the order book is run off.

[belgraviaboy] 21/3/2019 08:41

Rock Star - explain how it is screwed?

Parts value of the planes alone exceeds the existing share price...

[rock star] 21/3/2019 08:17

Sf5. Good analysis.

[rock star] 21/3/2019 08:14

A380’s are long haul not charter business.

I think this is potentially screwed.

The auditor’s/valuers are going to have to have a proper look at the terminal values as they could be at risk further down the line.

[bandit99] 06/3/2019 14:41

These A380's going cheap might be of interest to charter airlines who can put more guaranteed bums on seats than scheduled airlines, plus they can take out first and business and put more economy seats in. This might aid the end of life residuals...can only hope!

[sf5] 04/3/2019 19:25

I've tried to sense-check some figures though my assumptions may be wide of the mark.:

Assume ordinary shares continue to receive their targetted 8.25p dividend till planned redemption (relying on Emirates' covenant).
Also assume DNA3's debt is fully repaid by redemption (again, a bet on Emirates honouring their lease, but the $630m initial debt had reduced to $274 by 31.12.18 and Class B is due to be paid off by 30.11.19 and Class A by 30.5.23).
Also assume continuation of the 1.2736 exchange rate in the 31.12.18 report.

Then on a projected $60m per plane residual value, my estimates suggest a 9% pa IRR to shareholders from the current 90-91p share price. I'd call this a broadly optimistic scenario given the likely low demand for A380's in 2025-26.

A possibly conservative $30m per plane residual value points to a 2% pa IRR. Not a disaster.

A worst case of nil residual value (implying absolutely no demand for used airframes or parts) points to a -12% pa IRR. Painful! Maybe this is ultra pessimistic, but we could have significant over-supply of used airframes at that point and I don't believe that any other airfraames use the A380 engines.

Another scenario might be that Emirates is prepared to continue to fly our A380's for a while. So we could look at perhaps a 3-year lease extension at 50% of the current £74m pa rental (for the 4 planes in total). This implies an effective residual value of at least $34m per plane and an IRR of c. 3% pa. Again, not a disastrous outcome.

All sorts of intermediate possibilities of course, and it maybe my assumptions are heroic in some respects.

Incidentally, I see Kames dropped just below 3% following the Airbus announcement.

[sf5] 16/2/2019 08:48

Article here may be a bit fanciful, who knows?
What I don't understand about the part-out argument is this surely works only when there's a sizeable fleet of A380's still to maintain. Once the residual fleet becomes too small there'll presumably be a glut of planes coming out of service whose parts will no longer be required to maintain the dwindling flying fleet. Though that point may be many years off given the life of a well-maintained airframe. There must be precedents we can look at for other planes that have stopped production after a relatively short run?

[grahamg8] 15/2/2019 19:18

Try this for size. Take a sample of high risk bond/pseudo bond shares ERO1, ENQ1, FAIR. Work out the sum of annual dividends plus annualised capital gains. They have remarkably similar total returns of 11.28, 13.78, and 12.66%pa. Use the average and work backwards for DNA, DNA2, and DNA3. ie Subtract the dividend income, use the annualised capital gain to estimate the required lease end date share price, which in turn gives the final Mcap, divide by the number of planes. The implied residual plane value is £52.65m for DNA, £57.80m for DNA2 and £64.81m for DNA3.

This is well short of the $100m each or so at the last valuation but not quite the collapse in values that some have implied. If you are interested in high risk income and think the planes are worth more than this then buy DNA1,2,3. If your view is that they are worth less then sell and buy into ERO1, ENQ1, and FAIR.

As always do your own research, this is not investment advice, I am not a registered financial adviser, the calculation method used is mine and if you do a similar exercise then you will certainly come up with different figures. But it is a starting point for me to decide what I want to do.

[belgraviaboy] 15/2/2019 09:32

IIRC Dr Peters thought breaking their A380 would give around $80m (for an older less efficient spec).

Yesterday Doric suggested the A380 news may well have increased those values.

So not impossible to see £1 capital back

[langland] 15/2/2019 08:50

Or an extended lease of about 5.5 years at same rates to get capital back?

[profitaker] 15/2/2019 08:23

Good points Graham

"The planes have a residual value. We just don't know what it might be."

No we don't, but we know what we need to get £1 back, and that's $70.4m each at current USD/GBP.

[grahamg8] 15/2/2019 08:00

Emirates are key. They must like the planes as they are still buying them. The economic life is longer than the lease term. So when the lease ends they either have to cut the routes being served, presumably not on the radar as the planes must be profitable in service otherwise why buy more new ones; or they buy the ex lease planes, which means they have a residual second hand value; or they begin new lease terms when the current ones end - DNA4 here we come. The planes have a residual value. We just don't know what it might be.

[profitaker] 14/2/2019 17:01

A positive update from our asset manager:"Amedeo considers today's Airbus announcement to have positive implications for the future values of the installed A380 fleet, particularly those aircraft operated by Emirates."

[belgraviaboy] 14/2/2019 14:47

Yes - they may be able to be leased separately as has happened the one of the existing investment vehicle financed A380s that is currently being sold for parts

[bandit99] 14/2/2019 14:31

do the engines count as part of the residual value of the aircraft?

[profitaker] 14/2/2019 09:39

There are 6.8 years remaining until the leases expire, the debt then has been fully repaid, and the company is liquidated. To get £1 back (todays share price offer) at the point of liquidation would need each aircraft to be sold for (£220m x 1.28 / 4) $70.4m. They are currently carried at $159.8m each.

Considering there is a further 56p in dividend payments to come before liquidation, residual value break-even for anyone buying today is $31m per aircraft.

More than happy to hold here.

[rock star] 14/2/2019 07:49

DNA holders get the last portion of the residual value from memory.

The yield no way is reflects the risk.

[belgraviaboy] 14/2/2019 06:14

Depends on what happens to the parts prices - these were already pretty much valued on the assumption that they would be parted out at end of lease (excluding the engines)

[riff1954] 14/2/2019 05:58

Worrying news: I wondered why this and it's associates had dropped yesterday. Could go either way - supply reduced but what about demand?

[rock star] 02/2/2019 07:16

I’m still very wary of this as an investment.

[sf5] 25/11/2018 08:37

Reports that Air France has decided to reduce 5 A380's. Interior refurb costs sound huge!

[sf5] 03/11/2018 17:05

Well it appears the Emirates A380-800 orders are to go ahead with the current engine configuration
hxxps://www.ch-aviation.com/portal/news/72407-emirates-to-take-a380s-with-current-engines

[rock star] 11/10/2018 09:34

To invest in this you need to do a lot of dd.

DNA holders are, from memory, third line creditors so carry all the risk in a reduction in terminal value.

There are far better risk/reward yield stocks in the market.

Also the shareholder base is concentrated which adds to the risk but dyor.