On 18 December, AVAP announced it bought back 10.45% of shares in issue at 150p/share, and hinted at further such transactions in the future.
This does not inspire a lot of confidence:
– Rangeley/Raper sold almost half of their position in AVAP – potential pressure on management by these guys was one of the key parts of the investment thesis. Also, they clearly do not think risk/return is favorable at 150p/share to maintain the full position.
– It kind of seems that the whole buyback was done to cash out either insiders or large shareholders. Unclear which one, as there were two days with 8m+ trading volume – insiders were likely selling on Nov 28, and Rangeley on Dec 17.
there are RNS 20th and 23rd December referring to the 18th December and Rangeley for both. No insiders were involved that I can see.
I don't see this the same way; it suited both parties to do this deal.
The benefit to Rangeley is it boosts the NAV of the remaining substantial 14.9% holding and frees up some cash. They appear to have bought in at October 2023 at 122p so this is a ~20% return they can "Book" for their 2024 results, as well as an accretion to NAV of their remaining 14.9% holding.
I also don't see (personally) that management need pressure, they are getting on with the job and seem to have a good strategy (which I set out in my articles and presentation).
For AVAP they get to boost their NAV at a lower price than they've have achieved in the open market (probably). Given that the main form of return for AVAP is accretion of NAV that's a big tick.
I just think that if you have confidence in the company, you don't sell such a large holding, and using company funds to buy them is a potential conflict of interest. If they'd sold so many shares on the market they would have got an even lower price than 150p and then the company could have used it's own funds to do a buyback at an even cheaper price, to the benefit of existing shareholders.
But I do see also that the remaining 15% they own is still a sufficiently large amount of skin in the game for them to have an interest in the company's success
Really interesting, thanks. One question on the 3.4m, this assumes that the additional gain on the prepayment rights, that was not included in the balance sheet asset at the time of the recent buy and flips, continues to be monetized at this level. However, surely the prepayment right asset re-mark would have reflected the excess gain in H2, I.e it is modelled as an option, would have been calibrated to this latest level in fair value. I haven't read the accounts, sorry, but this would mean the 3.4 doesn't exist as it is already on balance sheet. The uplift of 55m is about this amount (3.4 x 24) less some discounting (rights go to 2034). Sorry if I have got the wrong end of the stick here. Thanks for the analysis. Updated: ok the recent flip was post year end however looking at avation's annual report the purchase right option classified as a level 2 not level 3 asset. I think a lot of the implied 3.4 is marked in.
In the FY25 numbers, isn't your excelt neglecting to include expenses in operating and net profit? Shouldn't they be closer to $94 and $32, respectively, accounting for the admin expense listed of -$11.0?
Really thorough article - thanks. I'm a holder of AVAP.
While on the plane leasing topic, what do you think of DP Aircraft fund? I think NAV per share with them is about 17c but they are trading at 6c. As long as they can maintain their debt payments, I'm hoping they may be able to sell their planes (I think they are Boeing 737 Max's) at even a premium to NAV, rather than adhering to the leasing business model.
2x 2014-vintage 787-8 on lease to Thai until Oct/Dec 2026. Thai on the mend and lease income covers debt costs and running costs, so I think the 16c NAV about right. Thai prefer the -9, so I'd expect a sale announced a few months in advance of the lease end date. $15m mkt cap and stock doesn't trade most days though...
The numbers in the half year look quite good but found that the 787-9 (and 787-10) are not the only aircraft which are preferred - the narrowbody Neo is also a preferred choice so the question/concern is how likely are DP to sell those aircraft at a reasonable valuation.
I just read the article you linked to re the scrapping of the 2 Boeing 787s. I would guess these are the 2 the banks repossessed from DPA that were leased to Norwegian Air during the pandemic.
However the article is dated March 2023. I'm pretty sure that aircraft values are a lot higher today so there might be a market for the ones DPA is still holding.
Hi Team, it's certainly possible but when there are other options to play the theme it didn't feel like an obvious choice to go for. Certainly worth researching it for latest news before diving in, as ever!
The fact that Rangeley and Raper are on this as well gives additional comfort. Chris and Jeremy are smart guys.
On 18 December, AVAP announced it bought back 10.45% of shares in issue at 150p/share, and hinted at further such transactions in the future.
This does not inspire a lot of confidence:
– Rangeley/Raper sold almost half of their position in AVAP – potential pressure on management by these guys was one of the key parts of the investment thesis. Also, they clearly do not think risk/return is favorable at 150p/share to maintain the full position.
– It kind of seems that the whole buyback was done to cash out either insiders or large shareholders. Unclear which one, as there were two days with 8m+ trading volume – insiders were likely selling on Nov 28, and Rangeley on Dec 17.
Hi Team,
there are RNS 20th and 23rd December referring to the 18th December and Rangeley for both. No insiders were involved that I can see.
I don't see this the same way; it suited both parties to do this deal.
The benefit to Rangeley is it boosts the NAV of the remaining substantial 14.9% holding and frees up some cash. They appear to have bought in at October 2023 at 122p so this is a ~20% return they can "Book" for their 2024 results, as well as an accretion to NAV of their remaining 14.9% holding.
I also don't see (personally) that management need pressure, they are getting on with the job and seem to have a good strategy (which I set out in my articles and presentation).
For AVAP they get to boost their NAV at a lower price than they've have achieved in the open market (probably). Given that the main form of return for AVAP is accretion of NAV that's a big tick.
Win win.
OB
I just think that if you have confidence in the company, you don't sell such a large holding, and using company funds to buy them is a potential conflict of interest. If they'd sold so many shares on the market they would have got an even lower price than 150p and then the company could have used it's own funds to do a buyback at an even cheaper price, to the benefit of existing shareholders.
But I do see also that the remaining 15% they own is still a sufficiently large amount of skin in the game for them to have an interest in the company's success
Really interesting, thanks. One question on the 3.4m, this assumes that the additional gain on the prepayment rights, that was not included in the balance sheet asset at the time of the recent buy and flips, continues to be monetized at this level. However, surely the prepayment right asset re-mark would have reflected the excess gain in H2, I.e it is modelled as an option, would have been calibrated to this latest level in fair value. I haven't read the accounts, sorry, but this would mean the 3.4 doesn't exist as it is already on balance sheet. The uplift of 55m is about this amount (3.4 x 24) less some discounting (rights go to 2034). Sorry if I have got the wrong end of the stick here. Thanks for the analysis. Updated: ok the recent flip was post year end however looking at avation's annual report the purchase right option classified as a level 2 not level 3 asset. I think a lot of the implied 3.4 is marked in.
Great write-up, thank you.
In the FY25 numbers, isn't your excelt neglecting to include expenses in operating and net profit? Shouldn't they be closer to $94 and $32, respectively, accounting for the admin expense listed of -$11.0?
Robert, You're correct - have updated.
Really thorough article - thanks. I'm a holder of AVAP.
While on the plane leasing topic, what do you think of DP Aircraft fund? I think NAV per share with them is about 17c but they are trading at 6c. As long as they can maintain their debt payments, I'm hoping they may be able to sell their planes (I think they are Boeing 737 Max's) at even a premium to NAV, rather than adhering to the leasing business model.
2x 2014-vintage 787-8 on lease to Thai until Oct/Dec 2026. Thai on the mend and lease income covers debt costs and running costs, so I think the 16c NAV about right. Thai prefer the -9, so I'd expect a sale announced a few months in advance of the lease end date. $15m mkt cap and stock doesn't trade most days though...
Hi Cass
The numbers in the half year look quite good but found that the 787-9 (and 787-10) are not the only aircraft which are preferred - the narrowbody Neo is also a preferred choice so the question/concern is how likely are DP to sell those aircraft at a reasonable valuation.
(See: https://www.youtube.com/watch?v=teCZBRAjk0A)
They are in the books at £62m each. Net debt is £40m each. Market Cap is £6m each.
If they sold for £46m each you'd get your money back. More and you make a profit (less costs), and less you'd lose some or all of your money.
This article suggests they might only be worth $30m each!
https://edition.cnn.com/travel/article/10-year-old-boeing-787s-scrapped/index.html
I think I'd give this one a miss!
OB
I just read the article you linked to re the scrapping of the 2 Boeing 787s. I would guess these are the 2 the banks repossessed from DPA that were leased to Norwegian Air during the pandemic.
However the article is dated March 2023. I'm pretty sure that aircraft values are a lot higher today so there might be a market for the ones DPA is still holding.
Hi Team, it's certainly possible but when there are other options to play the theme it didn't feel like an obvious choice to go for. Certainly worth researching it for latest news before diving in, as ever!
OB
Nice to get some agreement. Thanks for providing the accurate stats.