Carcosa wrote:Over the last few weeks I have been selling my DNA3 shares and now have fully disposed of my holding.
On July 18th, 2020 I started this thread with my views regarding DNA3, following a suggestion from a reader from the Avation plc board, in which I identified the key elements for investing in DNA3:
1) Emirates would continue to pay their lease charges
2) No secondary market for the aircraft
3) Residual value which I then estimated to be $15m compared to the then claimed $60m
4) An estimated total return of almost 100%
and shortly followed up with a suggestion that a half-life payment of $10m would seem reasonable (we actually got $12m/aircraft)
Well today from that 35p share price we now have a sp of 56p and a total dividend of 12 x 2.0625 = 24.75p giving a total return of 130%, exceeding my expectations. In actual fact the lowest share price I obtained was 32p give a 152% return.
I have now sold out of DNA3 because the current share price is factoring in an assumption that many of the aircraft are going to be bought by Emirates at a price similar that achieved by DNA1.
It should be noted that the DNA1 aircraft was bought for spares only. Not revenue service.
The risk is that Emirates purchase of DNA3 aircraft may or may not happen and if it does there is no guarantee that $30m/aircraft will be achieved. It is quite feasible that some or all aircraft will be re-leased as per the existing contract. It is a certainty that any new lease rate would be against the end of lease value of the aircraft meaning that for the entire 4 aircraft fleet it could represent a potential income to shareholders of about 3.75p/year. (0.9p/qtr). However there would not be any immediate half-life payments, and a good chance that come end of the lease extension the aircraft would be scrapped as replacement Boeing/Airbus aircraft finally get delivered. Scrap value at that point would likely be lower and half life payments would reflect that.
From Emirates point of view they would place priority on the later delivered A380's compared to the Doric aircraft because newer aircraft would probably require less maintenance expenditure.
Also, should Emirates/Doric announce a lease extension then I would expect investors would sell DNA3 shares leading to a greater capital loss than the potential income could replace. Of course, if such a thing was to happen then it could make investing in DNA3 attractive once again!
There is also the question as to what Doric would want to do with the aircraft/company. It would not be unreasonable to think they would want to divest the aircraft and wind the company down.
So overall there are too many variables i.e. risk, going forward. Having said that, the hype generated by commentators surrounding the A380 could push the shareprice well above book value in the coming months.
As someone on TMF used to say, leave something for the other guy...
I still have a few shares in DNA2 which I see as being marginally more valuable but will look to sell those shares in the coming weeks and months.
https://www.londonstockexchange.com/new ... n/15840890