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Avation (AVAP)

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Carcosa
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Re: Avation (AVAP)

#153299

Postby Carcosa » July 19th, 2018, 8:27 am

It's customary for a company to thank a board member...


The outgoing CFO was not and never has been a Board member.

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Re: Avation (AVAP)

#153355

Postby simoan » July 19th, 2018, 11:40 am

Carcosa wrote:
It's customary for a company to thank a board member...


The outgoing CFO was not and never has been a Board member.

OK, I stand corrected, but you know what I mean! The CFO is a very prominent position within a listed company, even more so for a small company with few employees. To say nothing is poor form and leaves shareholders in the dark. You must have felt this way yourself otherwise you'd not have bothered contacting the company.

All the best, Si

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Re: Avation (AVAP)

#154924

Postby simoan » July 25th, 2018, 11:20 am

Something occurred to me yesterday as I was looking through my portfolio and asking myself the important question "why do I hold this?". Why is Avation even listed on the stock market? It's entire business model is centred around tapping the debt market, not the equity market. Is it just a way for the directors to award and then later liquidate share options to enrich themselves? And why are they constantly turning up at private investor events to promote the company when it is really institutional investors they should be getting on board? If they do the latter, then why are no institutions interested? Do they know something we don't or is it just that the company is too small?

OK, I've got my cynical head on today but interested to hear others thoughts...
All the best, Si

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Re: Avation (AVAP)

#158270

Postby Carcosa » August 9th, 2018, 4:25 pm

Looks like someone managed to get £1.34m worth of shares according to this Post Trade Deferral Off-Book report. That's about 9% of the company.

May also be the reason for the 2.6% increase in the share price of late; but I thought such trades were only protected for 48 hours? It's also reported at todays 'buy' price

Image

Maybe someone can fill me in as to what typically a report of this nature really means?

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Re: Avation (AVAP)

#158283

Postby Carcosa » August 9th, 2018, 4:45 pm

... 0.9% of the company... ;-)

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Re: Avation (AVAP)

#164661

Postby Carcosa » September 6th, 2018, 1:51 pm

Avation issued their prelims today.

All pretty much as expected. During the subsequent investor presentation the following was revealed.

* Avation expecting a 'fully priced, shareholder and credit rating worthy sale of an aircraft (Vietjet A320?) to be completed end of the year.
* Avation to bid for AirBaltic 2019 A220 deliveries. :-)

I work it out that if no further orders are received (which we know we can expect) then next years revenue will be up ~18% to $128m

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Re: Avation (AVAP)

#177137

Postby Carcosa » October 30th, 2018, 1:12 pm

https://www.proactiveinvestors.co.uk/co ... 11043.html

"Richard Wolanski, CFO at Avation PLC (LON:AVAP), caught up with Proactive London to chat through their recent set of full year results as well as the outlook for the commercial aircraft leaser.

''We're investing in bigger types of planes which are more valuable''.

''The reason why we can keep the growth rate going is because we're not buying any more planes but we're buying more valuable assets''.

''The biggest and best airlines in the world use small, medium and large aircraft ... we now have the ability to deliver all that they require''.

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Re: Avation (AVAP)

#186091

Postby Carcosa » December 11th, 2018, 9:31 am

Following is from Simon Thompson of the Investors Chronicle (10 Dec 2018) with my comments in bold:

“The directors of aircraft leasing company Avation (AVAP:256p) have delivered yet more good news to shareholders at its annual meeting as I had anticipated they would a couple of months ago ('Poised for take-off', 8 Oct 2018).

The board is guiding investors to expect a 39 per cent increase in aircraft lease rental values in the six months to the end of December 2018, an outcome that will deliver a record half-year profit and a run rate in line with Canaccord Genuity’s full-year revenue forecast of $119m (£93m).

[Am in agreement, as I get $118.4m. However this is without contributions from the four yet to be delivered ATR's which could potentially add $1.5m and a potential A320 toward FY end]

The update is supportive of expectations that Avation can lift full-year underlying pre-tax profit from $18.9m to $23.8m and deliver EPS of 35¢ (27.5p) for the 12 months to the the end of June 2019.

[These numbers may not be so accurate. The actual realisation from the VietJet A320 sale will have a large influence as well as the revised credit ratings. Personally I see $28m PTP and a $0.39 EPS]

The board has declared a first half-year dividend a share of 2¢, underpinning analysts’ full-year expectations of an 8¢ (6.2p) payout.

The directors have also revealed the extent to which the fleet is undervalued.

[Not strictly true. They have made a credible suggestion that this is the case but have not put a number of it or indicated which aircraft]

The conditional disposal of one of Avation’s eight Airbus A321-200 aircraft to an Asian buyer has been agreed at a price that will exceed its book value of $48.7m (£37.5m) by “more than 10 per cent”, a significant sum in relation to the profits expected from the company’s leasing activities.

[The deal has yet to complete; expected by years' end though. So a 6 month depreciation charge has to be included taking the aircraft value down to ~$47.8m. There are also likely to be a finance charge associated with this transaction. Nevertheless a significant sum is likely to be realised as profit.]

They also flagged up that narrow-body aircraft now comprise “half of the $1bn fleet value”, the clear implication being that Avation’s last reported net asset value (NAV) of $231m (£180m), or 280p a share at current exchange rates, is far too conservative.

[The two A220's have to be excluded from the 'revaluation' along with the four relatively old A320's which may in fact (likely) have their valuations revised downwards. Therefore the implication that $500m will have a ~10% increase in valuation is poppycock]

Please note that I have adjusted the last reported NAV to take into account the exercise of share options post the June 2018 financial year-end.

Furthermore, after accounting for the delivery of two ATR72-600 aircraft by the end of this month, the company still retains options and purchase rights over 25 of these aircraft for delivery up to December 2023, all of which are held in the account at nil cost.

[ Errr.. no. 5 ATR options expired leaving Avation with 25 options. The options expired/lapsed worthless which is one reason why the auditors do not allow a valuation of these options to be entered into the accounts. Therefore options should rightly be ignored for valuation purposes].

To put the value of these aircraft options into perspective, Canaccord has a target price of 335p, representing a 20 per cent premium to Avation’s last reported NAV, which is "justified by the company’s attractive growth prospects and [the premium] largely underwritten by the value of its ATR options".

[Typically investors have looked at profits/EPS as a measure for Avations' valuation I have maintained that its really NAV that investors should be looking at and given it's growth rate valuation in excess of NAV is warranted]

In other words, the 25 ATR-72 aircraft options could easily be worth $45m (£35m) on the open market,

[Well, 5 of them expired worthless so...]

a significant sum in relation to Avation’s market capitalisation of £164m. Add to that a potential $50m (£39m) plus undervaluation of the narrow-bodied fleet and there is potentially $95m of hidden value

[For reasons I mentioned earlier, I work it out to potentially $30.9m nothing like the $95m mentioned here]

not embedded in Avation’s reported NAV of $231m. Furthermore, my financial models suggest that Avation could boost its reported NAV to $257m, or 399¢ (312p) a share, by June 2019

[I think nearer 374¢]

after taking into account only the realised $5m-plus profit on the aforementioned Airbus A321-200 aircraft sale and retained profits in the 12-month trading period. However, mark Avation’s fleet of 41 aircraft to their open market value, and factor in a realistic valuation of the 25 ATR-72 options, which have increasing scarcity value

[ Definitely not true for 2018. The Iran sanctions put paid to that with ATR having to quickly find new homes for those aircraft; and if there was such a big demand then Avation should have been able to sell those 5 options, if not more. 2019, however, could see a demand increase unless the recent activity regarding the Q400's spoils the party]

– ATR only manufactures 85 planes a year and demand from China, India and Iran [Nil] is tightening the market – and the company’s break-up value is realistically far closer to 400p a share.

Trading on a forward PE ratio of nine, offering a 2.4 per cent prospective dividend yield, and with substantial hidden value in the accounts, I continue to see value in Avation's shares, which have posted a total return of 72 per cent since I first advised buying at 159p ('Get on board for blue-sky gains', 11 Sep 2014). Strong buy.”

[Most of my comments are quibbles as the company just needs to wash, rinse and repeat to grow, as it has done for several years. It would be nice to see it grow to sufficient size where they could enter into partnerships achieve growth potential. For example, Avolon recently established an asset management platform with China Cinda Asset Management Co., Ltd. and Air Lease continues to grow its JV with Napier Park Global Capital (US) LP, Blackbird Capital II, LLC. Intrepid announced they had entered into a partnership with Amedeo Capital Management. But that is probably many years away.

What has been omitted in the article is that if the A320 fleet really is worth ~10% more than currently valued then acquiring new aircraft will be correspondingly more expensive which is not ideal for Avation given its size. It also opens up the possibility of severe downgrades in 2-3 years if the market reverts. Furthermore Avation were approached by an outside party willing to pay over 10% above book value which may not be indicative of the world market. Without knowing who the acquirer is it's hard to say. Might even be a subsidiary or govt linked company to Vietjet. It may open the door for Avation to sell further Vietjet aircraft at a premium to book.

It does only illustrate that the realisable value of the narrowbody fleet exceeds the book value based on the current market conditions and the sale does suggest the realisable value per share exceeds the NAV/share. However that may not lead to an upward revision of the same magnitude come the next prelims which value the aircraft against other criteria. If it does come to pass then the Loan to Value ratio will ease allowing Avation to deploy further capital.

It should also be noted that the LTV methodology changed from using Fleet Asset Value to Net Indebtedness. Reason being is to align it with banking covenants. This resulted in a major change to how the data is presented and may (or maynot?) make it more difficult to compare with other leasing companies. It may also mask just how much the fleet LTV actually is. Of course the opposing argument is that the economic life of the aircraft is 25 years against a financial liability of ~12 years... but I digress.... ;-) ]

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Re: Avation (AVAP)

#190929

Postby Carcosa » January 4th, 2019, 5:34 am

Avation issued what I consider is a confusing RNS yesterday In plain language they have converted 8 ATR options into orders and been granted a further 8 options hence the options remain at the 25 level.

Also, another ATR was due for delivery by end of December 2018 and that has yet to be done. Hopefully the delay is minor otherwise an RNS should have been issued.

Three weeks ago it was announced four Airbus A220-300 aircraft, formerly Bombardier C Series, were to be delivered in the first half of 2019. I have mentioned before that it would be good, in my opinion, if Avation were to become something of a specialist lessor for the A220's (similar to how they are with the ATR's). My belief is that the actual acquisition costs are extremely low ($28.5m) and if the aircraft is successful (far more likely now that Airbus are involved) then there are likely to be substantial increases in the aircraft book value. By substantial I mean ~$10m each. It may however take a number of years to get there but along the way aircraft revaluations are likely to be on the positive side.

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Re: Avation (AVAP)

#191660

Postby Carcosa » January 7th, 2019, 11:52 am

Got that wrong. AirBaltic/AVAP paid $36.477m for the A220

See annual report (2018, p82) and combine it with other info supplied by Avation in their presentations. i.e.
New Jet additions $283,975m
Less the A330/B777 at $247,498m
Leaves $36,477m for the A220.

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Re: Avation (AVAP)

#200460

Postby Carcosa » February 11th, 2019, 8:42 am

Today Avation issued a Trading Update in which the key parts were:

Avation expects to report increased profit for the six months ended 31 December 2018, with both earnings per share and profit before taxation expected to be approximately double that of the comparable half-year period ended 31 December 2017. Revenue (unaudited) is expected to increase to approximately US$58 million (2017: US$52.4 million).


Mmmmm I sorta disagree! The business of Avatino is aircraft leasing and therefore it is aircraft leasing revenue that I am interested in. The comparable figure of $52.4m is flattered by what I would claim is an exceptional figure of ~$10m which was the recovery of maintenance reserve from an insolvent (Air Berlin) A320 so the comparable figure is actually $41.7m That means comparable lease income has increased by ~ 38%

So, lease revenue $58m v $41.7m (+38%)

FY2018 Lease revenue $109m
Less H1 2018 Lease Revenue 2018 ($41.7m)
Less Air Berlin Maint. reserves ($10.3m)
Gives H2 2018 (June 2018) Revenue of $56.7m

So if no changes to revenue then H1 2019 should be $56.7m

But:
ATR 72's (DAT) additional revenue ($0.59 + 0.24m) = $0.83m
A220's = ($1.8m + $1.6m) = $2.4m
A230 (Vietjet sale) loss of revenue = -$0.74m
Net change = $2.49m (i.e. additional revenue in H2 over lease revenue H1
= 56.7m + 2.49m = $59.2m ie. more than the TU today of "approximately US$58m"

The difference can be due to around $0.1m in EUR/USD exchange
Timing issues in my calcs ~$0.2m
Me just getting lease rates wrong ~$0.5m
So I end up with $58.4m

So where is the revenue being recognised from the A320 Vietjet aircraft sale? So I binged an email to Avation and got it confirmed that the revenue does not include the Viet Jet sale. i.e. there will be even better news when the results are released namely;

Lease revenues +35-39%
Additional 'profit on Vietjet aircraft ($1-3m?)

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Re: Avation (AVAP)

#205192

Postby Carcosa » March 3rd, 2019, 12:58 pm

By way of example, AVAP has 41 aircraft and firm commitments for another 7 aircraft by End June 2019. The top lessors has around 1300 aircraft (GECAS). Avation are about the 42nd largest lessor by mid-year. Alternatively by fleet value, $35 billion (AERCAP) down to Avation around $1bn around 45th place. In other words Avation simply do not 'feature' on anyone's radar when it comes to size. However, it's small size is a big advantage for the company and investors.

Aircraft leasing has been around for decades. There is nothing particularly clever about it nor is there much innovation in the business (historically some aircraft lease ideas originated during the time of the steam locomotives). It is also an industry which is heavily regulated, subject to a multitude of international conventions/legal framework and given the huge sums of money involved finance is obtained from reputable sources (if there is such a thing ;-) ) Finance/Auditing conventions are well established. Also, for all practical purposes, there are only two major airframe manufacturers supplying an ever increasing market.

Given the above, in my opinion the possibility of nasty surprises (i.e. fraud!) is extremely low.

Although the company is small, as it grows its fleet it becomes increasingly difficult to calculate finance costs accurately. This is because profits are relatively tiny compared to asset value/debt and a very minor change in debt costs has a large effect on profits. Furthermore some of the finance instruments being used are starting to have a noticeable effect on overall returns.

Recent interims have been excellent. However I think some investors/commentators have made assumptions regarding the future which I tend to disagree with. They centre around the A321 valuation, ATR Options and NAV

The A320/A321 Fleet:

Broadly speaking, jet aircraft pricing is determined between the airline and the airframe manufacturer (supported by the engine manufacturer). The airline buys the aircraft and then a leasing company buys the aircraft from the airline and leases it back to them i.e. A Sale and Lease Back arrangement (SALB). The leasing company has no say in the aircraft price.

By way of background, no airline in the world pays the 'sticker' price. They all get a discount. The larger airlines, especially those in 'new markets' where there is real competition between Airbus and Boeing can get what I think the general public would regard as extraordinary discounts. VietJet certainly fits that bill.

VietJet maiden flight occurred in December 2011. They will have 72 A320/A321's and have 200 B737's on order. They will have got these aircraft at a good price (along with other support). In actual fact, we can work out how much they got them for from Avation's accounts and it turns out to be $51,358,000. By comparison a normal real world price was $54.1m. So that's around $2.7m difference

Aircraft valuations are a strange beast though. In recent years as narrow bodied jet aircraft age beyond 2-3 years their actual valuations exceeded their depreciated price i.e. a 2016 delivered A321-200 aircraft is worth $45.2m in the market compared to a book value of $44.2m (these are industry values and will vary according to region, aircraft spec, condition etc).

Avation sold one of the five VietJet aircraft for a profit. They have not advised which A321 but the oldest A321 is 6 months older than the last Avation delivered aircraft. I have taken a guess its one of the last two deliveries.

Avation acquired the aircraft for $51.4
Book value at time of sale $48.7
Sold for a profit of $5.2m
Sale price therefore $53.9m
Whoever acquired it got it at world market price i.e. they did not really over pay for it.

The $5.2m profit was driven by VietJet originally getting a good price to begin with and general market pricing.

So why do I disagree with some commentators when they say the Book Value for the A321 fleet is higher than what is on the Avation books? Well, firstly Avation are not claiming this themselves. They carefully advise that the 'Realisable' value is above book and leaving it for investors to assume the A321 fleet (VietJet, Thomas Cook and Galistair) and by association the A320 fleet too.

Well, the Thomas Cook aircraft were acquired for $52m each in 2016, before the VietJet deliveries. Thomas Cook did not get as good a deal as Vietjet. Therefore their realisable value is not as great as the VietJet fleet. (I would also hazard a guess the specs are not as good as VietJets). As for the A320's, these aircraft are much older, 8, 10 and 17 years. These old aircraft have been on the market for sale for a number of years and so far Avation have yet to find a suitable lessor to take them off their hands.

It would be nice if Avation could convince the auditors to increase the BV come the full year results but I am not expecting that to happen. Will wait and see. If it happens then lets say they can apply a generous $5m against the 4 VietJet A321's. That's $20m or 23p per share in asset terms. Not going to set the world alight is it?!

ATR Options

For Avation, options only apply too the ATR fleet. An option is the right to buy an aircraft/production slot within some range date in the future at a pre-determined cost and subject to some escalation. From memory I think Avation's options extend into 2025. Options cost money and if they are not used they expire worthless. Normally an option will be confirmed into an order at least 6 months in advance of actual aircraft production, but 12 months is more desirable for the airframe manufacturer.

One advantage in holding an option is that if an airline customer goes to ATR to order an aircraft ATR could, in theory, tell the airline that they have no production slots available. Hence the airline may then approach Avation to use one of their production slots. Thus these options have some value.

Avation have actually sold options in the past. At the time I worked out that they made a $345,000 gain on the option. That seemed a bit expensive to me. Some commentators claim that Avations' options are not being valued. This is true. Auditors will not allow options to have value on the balance sheet unless those options are very likely to be used and in practice that means short term. Other commentators are claiming hidden value in these options.

So how much are these options? Probably $1m each. I think they have 25 options That's $25m in total I guess with a potential $8.9m gain. All sounds good in theory. Thats around 39p NAV.

The problem is that Options do have an expiry date and Avation may have to commit to procuring an ATR without a customer. This has happened before and then a savvy end customer can negotiate a good deal for themselves with Avation taking a less than ideal lease rate or term, or indeed a less than ideal customer. The alternative is that Avation allow the option to expire worthless. The last two years ATR market has been difficult and in response ATR have reduced their production rate this year to 74 aircraft (was 100). With fewer production slots those 2016/17 Options may become even more valuable.

So do the Options have hidden value? I'd say yes but personally I would not subscribe much value to them (10p?) because there are too many uncertainties; they become a big liability if you cannot find a customer. Also, other leasing companies treat options in a similar manner and I don't see why Avation should be treated any differently in this regard.

NAV / EPS

This used to be so much easier to work out in the past by using the aircraft NBV but now it's getting increasingly complicated with large changes related to Finance Lease's and Trade/Other receivables. The other complication is that Avation have not advised investors when the next batch of aircraft deliveries will be made; all we know is it is supposed to happen before end of June. As Sterling Investors the exchange rate is important. The recent interims were using an exchange rate of 1.27 but come June 2019 I wonder what it will be!? Making a range of assumptions I estimate NAV will be in the range of 305 - 315p come June 2019

On the assumption of no further aircraft sales then I am estimating EPS 29-32c (22-24p) But will be affected by actual aircraft delivery dates, and tax (Avation have unused tax credits available). This is on a revenue of $121m

Other Predictions

Revenue +11%
Operating Profit +26%
PBT +5%
Fleet BV +21%
EPS (GBP) -10%

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Re: Avation (AVAP)

#205296

Postby Carcosa » March 4th, 2019, 7:09 am

The leasing company has no say in the aircraft price.


This is Turnips. I don't know why I wrote that.

In a SALB the airline (VietJet in this case) will seek bids from lessors after setting their own price. Lessors will then offer Lease Terms, Lease Rates and Lease Factor. Lease Factor is the Lease Rate divided by Aircraft Cost. The airline would then choose the most suitable bid based on whatever criteria they had in mind.

Whilst I am here I may as well cover the ATR fleet. These aircraft are (mostly) procured by Avation using their options. Hence they are getting the aircraft from the forward order book. In this case an airline looking to get an operating lease would receive from Avation the Lease Rate but not the Lease Factor. This hides the actual price of the ATR from the airline. If Avation did provide the ATR Lease Factor then the airline would be able to work out the ATR Purchase Price and Avation would end up in a weak negotiating position.

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Re: Avation (AVAP)

#210338

Postby Carcosa » March 26th, 2019, 9:47 am

This is a (amended) repost:

Are things getting bad in the Avation ATR world?

Yesterday Avation issued an RNS announcement advising of the the delivery of an ATR72-600 to US-Bangla Airlines. This was the confirmation of the aircraft placement as stated in an RNS on the 18th January this year.

Some Yellow (yet to be red) flags:

A little bit of research identifies that the aircraft is in fact Registered as S2-AKG and manufacturers Serial Number (MSN) 1495. This is a 'problem'. But first what about the airline?

US-Bangla Airlines is a privately owned Bangladeshi airline headquartered in Dhaka and based at Shahjalal International Airport, in Bangladesh. They commenced operation in 2014 and so far have managed to have one Dash 8/Q400 air crash killing 51 people AND a B737-800 crash landing. This is from an airline with precious few aircraft in the fleet at the time. With yesterday's ATR delivery they now have 8 aircraft in service. 3 of them the Q400 which is a competitor to the ATR albeit a second rate competitor. They also have other Boeing aircraft on order ranging from the B737 Max ;-) to the Boeing 787-8.

With such a diverse set of aircraft and an overall very small fleet the costs of line maintenance, flight crews, cabin crews, spares, tooling, support etc becomes very very expensive. Although they appear to be operating in a very large growth/demand area the lack of a clear strategy in aircraft types does not bode well for the finances of the airline. Just think back to most airlines you know. They tend to operate the same aircraft type not a mix of multiple manufacturers.

Therefore overall, if this airline fails in 3-5 years I would not be in the least bit surprised.

The next yellow flag is the lease terms. Avation have already indicated this is for 8 years only. Normally leases are for 12 years or in some cases 6+6 (6 years + option for another 6 years) or in the case of Mandarin Airlines 8 years but Mandarin are a highly respected and very very large airline with good credit ratings.

So the 8 years for this lousy airline is probably recognition by Avation that they are taking on a risky customer and perhaps the lease rates are a bit higher than usual. Avation usually use the phrase 'Market Normal rates' but of course, in real life that could mean anything. We don't know what risk mitigation factors they may have in place.

So why did Avation go ahead with this deal? I can think of a couple of reasons. Firstly almost by its nature ATR's are designed to operate in tough locations and that does attract airlines with less than stella operations. And secondly, the ATR market had deteriorated over the last couple of years. Initially after the Iran/US sanctions returned a glut of 8-10 aircraft were looking for new homes and then demand slowed resulting in ATR reducing production rate to 74 aircraft (was 100) this year.

Avation have paid ATR for aircraft options which means they must place orders with ATR or else they options expire worthless and at an estimated $350K a pop that's something to be avoided! Obviously when granted the aircraft options there are no specific dates on when they can be exercised , so initially it may say x number of aircraft between years 2022-2024 etc Perhaps a year to 18 months away from an option expiry date Avation will have to start to commit to a more definitive schedule. being the number one ATR lessor, with options and in a weak market then leasing companies have to start accepting less than ideal airlines.

In the case of US-Bangla Airlines, given the manufacturing serial number this aircraft would have been expected to be factory complete by July 2018. That is the time frame that Iran Air re-imposed sanctions took effect. Potentially ATR may have cut a deal with Avation (their largest lessor), and perhaps backed by some sort of guarantee by ATR, to place this orphan aircraft that has been in storage for several months. This may have allowed Avation to accept an 8 year leasing deal at normal (typical)/marginally higher rates to get a return equivalent of a typical 10/12 year lease period simply because the acquisition cost would have been lower than a normal ex-factory ATR.

The alternative is that it appears Avation have ordered an ATR without having a customer and it's taken an age to place it most likely due to regulatory issues in Bangladesh (aircraft type and airline compliance/oversight) and arranging finance/guarantees. But even for Avation would they really want to take on perhaps one of the potentially highest risk airline in their portfolio? It seems so given market conditions.

It may be possible to identify the cost come the next annual report.

So in conclusion:
Only an 8 year lease, 18 month late aircraft placement, new airline, privately owned with a multitude of aircraft types and manufacturers, one crash and one major accident and one aircraft already in storage ,operating out of Bangladesh... can it get any worse in terms of risk? No, but Avation may have had little choice.

The same airline also has another ATR on order. Does not mean they will use Avation again.

There are a further 3 ATR's which Avation have yet to deliver by end June 2019. It will be interesting to see if they actually get delivered in time and who the customer(s) are.

NB: As usual, mostly the above is all speculation.

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Re: Avation (AVAP)

#218051

Postby Carcosa » April 29th, 2019, 7:04 am

As expected,RNS out today confirming the penultimate A220 aircraft delivery to Air Baltic. The sixth and final Avation delivery is likely in 7-10 days time as it is now midway through its production flight test programme. Personally I think this aircraft type is where Avation can make a name for itself in years to come and have a material improvement in the residual value of this aircraft type.

For the rest of this year (to 31 June 2019) a further three ATR's are scheduled to be delivered to as yet, unannounced airlines. As an estimate i would think that will improve the fleet valuation by about 26%

In the next financial year Avatoin are scheduled to deliver at least a further four ATR's (Options 26-29). I have calculated, somewhat crudely, how much cash Avation are likely to have at the end of this financial year and converted that into possible fleet additions for 2019/2020. That comes out as a further increase in fleet value by about 18%.

However various finance/credit rating covenants may have to be maintained so it is possible fleet expansion will take a relative pause in 2019/2020 until a full year's income stream has been generated.

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Re: Avation (AVAP)

#221658

Postby Carcosa » May 14th, 2019, 8:37 pm

Seems that Richard has been spending a couple of weeks in America with various finance institutions and also promoting Avation to US based investors. Also see https://youtu.be/PEfu_Jng1-o

Message, as always, is that Avation offers investors a growth story which you cannot get from the larger US based aircraft leasing companies.

Promoting Avation to US based investors who are familiar with aircraft leasing is good IMO.

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Re: Avation (AVAP)

#225704

Postby Carcosa » May 31st, 2019, 8:54 am

Avation (LSE:AVAP) - ADVFN Investor Lunch 21st May

Richard Wolanski, Finance Director of Avation plc, provided an investor update presentation, which included information about the company's new fleet additions, figures and analysis of its current trading whilst they have experienced one of the largest growth periods in their history.

Interesting re-hash regarding how the ATR made their way into Avation and hence how Avation came to be.

Standard presentation. Standard takeaways are
- Fleet valuation doubling every three years i.e. growth company
- Share price follows fleet valuation
- Total cost of debt suggested to be lower than 4.9%

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Re: Avation (AVAP)

#226544

Postby LeoInvestorUK » June 3rd, 2019, 4:15 pm

Hi all,

I have been reviewing Avation as an investment prospect for a while.
One thing I don't understand about Avation is why their EPS has grown so slowly for a company that is earning such a high interest rate margin and is so highly geared.

For example, FY 2013 EPS 23.25c, FY 2018 EPS 32.2c, an compound growth rate of under 7%. This means they do not meet my usual investment criteria.

It is not that 2013 EPS was unusually high, nor that FY 2018 is unusually low (next two years forecasts are 31c and 33c), nor has the number of shares increased unusually around this time.

In contrast, NAV/share has shown a good increase despite payment of dividends.

Is there some technical accounting explanation for this?

Thanks in advance,

Leo

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Re: Avation (AVAP)

#226668

Postby Carcosa » June 4th, 2019, 7:48 am

Leo,

Your question is not unusual, I have heard it on one form or another several times and I think it is a major concern of many retail investors.

Basically, having excessive profits is an inefficient use of capital.

Avation is a capital intensive leverage business. In simplistic terms if it is making a lot of 'profit' then it is failing to grow. For example, suppose it made $100m profit that would mean it would have $500 m of leveraged funds to deploy, e.g. 8 A321's ($0.5b assets) that it could have deployed to earn $50m annual revenue ($600m in 12 years), generating $60m profit and which would turn into $250m in pure asset profit 12 years after the loan has been paid off.

As the financial year progresses and the profit is generated, that is ploughed back into new assets. Hence this is why the share price 'should' be aligned to the NAV of the company (plus a bit for growth).

On any given year (and I would hope this starts to increase in frequency) an aircraft may be sold. Avation have demonstrated that the realisable value of the VietJet A321's is in the order of $5m over book. That is 25% of historical reported profit; and there are four such aircraft on the books with VietJet. So going forward the reported profit can be generated pretty much as the company wants.

Furthermore there are, according to a video I recently saw from the Finance Director, nine unencumbered aircraft which I would value at a pessimistic $117m (assuming they are all ATR's). These are aircraft which have been bought and paid for i.e no outstanding loans. So if these were sold then that is pure profit. But of course these are being valued as tangible assets and unlike a factory, machinery and other tangible assets who's realisable value is often below book, are akin to being liquid assets with very good possibility of being sold quickly if they elected to do that. In fact I am waiting on an email from Richard about unencumbered aircraft and their policy in extracting the best from them. Will advise if I get a response.

Whilst I am here I'll also say that pure profit can be derived from decreased cost of finance. A 0.5% improvement on that translates to $6m pure cash profit.

So, in summary, I would say that the profit which you seek is to be found in the asset value. EPS should always be relatively low, however I would point out that over the years P/E ratio is in the range of 5 to 9; so hardly a shabby performance and despite the share price growth it has maintained ~2% yield. The profit growth to which you refer is not great but it is being managed by the Board. The growth comes from the asset value which is in double digits.

As an investor in Avation I would say you have to take a view as to how risky the business is in relation to that NAV changing significantly for the worse and how risky the financing is. For me, I see those risks as being relatively small especially given the company is continually outpacing its rivals in terms of growth, its almost 100% fixed rate interest, and the fleet composition. The biggest risk factor for me is the £/$ exchange rate but I suspect it could be a few years away before that becomes a factor.

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Re: Avation (AVAP)

#226673

Postby simoan » June 4th, 2019, 8:12 am

Leo,

As Carcosa has made clear in his post, you have to think differently about certain companies. Avation is an asset play, so more like a REIT than a standard operating company making widgets in a factory. This is why asset value and cost of debt are always central considerations in Carcosa's excellent analysis that he generously shares with us here.

All the best, Si


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