Some initial Notes:
Avation issued its
FY 2023 results. Sadly they failed to update their own website in a timely manner and forgot to send out a notice via X/Twitter (not that it matters because they don't use the #AVAP tag anyway...)
Overall I was pleased with my independent forecasts of the results that I posted
here in May especially when taking into account post May events.
If you compare the analyst consensus forecasts (on Sharepad) headline results with actual results:
Turnover 89.8 / 99.25
EBITDA 91 / 109.2
EBIT 55.3 / 70.6
PTP 6.69 / 13.0
EPS 8.84c / 17.43c
..and the share price did nothing in response. I can only summise the market is discounting those Purchase Rights. If Avation can't use them, then that asset becomes a big liability.
A brief recap:Financial year revenue and other income for Avation was $99.3m in 2022/23, down from $116m the previous year.
Fleet assets were $898.6m and total assets were $1.18b at 30 June 2023.
Net indebtedness fell by 7.8% to $731.2million (2022: $792.9million); total cash and bank balances of $116.9mn (2022: $119.2m); operating profit of $70.6m (2022: $90.2m); profit after tax of $12.2m (2022: $17.1m).
Avation noted that a Southeast Asian airline has reduced its arrears by $5.1million since 30 June 2023.
Avation sold two ATR72-600 and a Boeing 737-800 aircraft.
One ATR72-600 aircraft was repossessed from Myanmar and subsequently commenced a new lease with with Tahiti; one off-lease ATR72-500 started a lease with a new airline customer in Nepal (Yeti)
Avation received a creditor distribution of $3.4m from Virgin Australia last year.
Refinanced two Airbus A220-300 aircraft with fixed-rate long-term loans, reducing Avation's exposure to interest rate changes.
Recently entered into an agreement to sell an 11-year-old off-lease ATR72-600;and a second 11-year-old off-lease ATR72-600, which is expected to be sold in November.
Avation=will have a fully utilised fleet.
Avation has continued to de-lever its balance sheet, achieving a reduction to 62% in the ratio of net debt to total assets as at 30 June 2023. A significant portion of the cashflow generated by the fleet is directed towards repayments of debt. Scheduled loan repayments for the 2024 financial year,amounting to around $62m, exceed expected depreciation of the fleet over the same period. Avation noted that it is hedged against further interest rate changes on 95.8% of its loans and borrowings. In the 12months to 30 June, Avation reversed around $3.3million of previously recognised impairment charges as aircraft valuations improved.
Some of the takeaways from the numbers can be summarised as follows:Fleet Asset values are trending up; in fact we have evidence the A220 valuations have powered ahead post these results.
Balance sheet deleveraging; now stands at 4.9x returning to normalised levels (but still horrendous in practically any other business!).
If I have calculated the primary rating agencies ratios properly then:
Net Debt to Equity is better at 3.0x (3.5x) and Funds From Operations to Debt is OK but EBITDA to Interest Ratio and EBIT Interest Cover is poor.
With a NAV of $3.41 (£2.80) per share that gives us a P/B of 0.37. Remarkable. However although there are 70,883,124 shares in issue there are also 5,857,408 warrants out there that investors should consider so NAV/Share is nearer $3.15, (£2.58) giving a P/B 0.4
Overall though the results and presentation was exactly what I was looking for. Avation have finally got through the COVID induced problems and navigated their way around a high interest rate environment.
Key takeaways into a new phase for Avation is getting rid of older aircraft, growing the fleet again with Airbus NEO and A220 series in addition to ATR turboprop. This is a multi-year programme and is not new news really. Interesting they are avoiding Boeing 737 MAX (less environmentally friendly)
Additionally Avation will consider the acquisition or sale of individual or smaller portfolios of aircraft. Personally I can't see them buying a portfolio of aircraft any time soon. A sale of a portion of the fleet, on the other hand is, certainly my preference. Outside of that it seems the only thing that is going to move the shareprice is some sort of corporate action.
A return to dividends is someway off
With references to A321-NEO's I posted come
current market values and lease rates earlier this month.
Sept 2024 is the next lease expiry.
PAL shares to be sold perhaps in Q1 2024
Identify opportunities to widen ATR customer base with Purchase Rights being used strategically. (I guess that may mean in partnerships/JV's)
All of my questions were addressed in the presentation:
PURCHASE RIGHTS. ATR can't manufacture aircraft quickly enough due to supply chain issues. Avation has discussions next week with ATR to discuss re-timing of ATR Purchase Rights.
STRATEGIC REVIEW. Enquiries all around the ATR order book. Would consider a review if there is a good inbound enquiry.
2024 ATR DELVERIES. 100% equity paid. LOI for these aircraft. Aircraft paid and under manufacture. (Although I do think that may be a play on words!). Jeff intimated they might start to announce LOI's in future.
SPECULATIVE ORDERS: No. Deliver organically as and well orders are received.
TERMINLOGY: Jeff gave a response which is inline to what current understanding is. However with all options being Purchase Rights then its a bit of a mute point.
SINGAPORE LEASING SCHEME: Expires in May 2024. Will apply again. Expect 8% tax rate again.
TECHNICAL TEAM: Not really an option. However did comment that these finance funds e.g. AA4, DNA etc get stuck with poor consultants and have to hire in third parties to deal with it.
OPTION EXPIRY DATES: Expiry Dates not being published given they change so often.
Bank market viable for finance, as Avation is not investment grade so too expensive there.
No share buy backs except chomp through the bonds which is NAV accretive
Refinance when bank loans paid,
"Fantastic Opportunity" if you have an aircraft.
(Whoever asked the question about Joint Ventures probably gets my vote for the most interesting question of the day!)
Overall I felt my concerns regarding the Purchase Rights have been alleviated.
Share Price: There has been practically nil commentary on investor boards and other social media. I wonder if the old Richard Wolanski road shows should be re-introduced?
2024/5 should be interesting.