I agree with your thesis on AVAP - I hear a lot of commentators highlighting that the ATR options are not “hidden value” on the balance sheet as if they are pointing out something profound. But what they miss is precisely what you’ve pointed out; that there is “hidden value” - it’s in the maintenance reserves!! But this latter item generally gets overlooked as the same commentators focus on the option value and then move on, satisfied they’ve dismissed the notion.
I would add that from a top down level plane lease rates are basically 12% - so yes, if the planes value has gone up lease renewals will likewise. Leasing is generally all about the cost of borrowing but when you have an environment where asset values are increasing then you get a rising NAV and increased forward lease rates. I find it hard to imagine AVAP will pay anything much over 6% when they refinance the bonds in Oct. So that will knock c. 2.5% off the cost of debt on average, so maybe $6-7m of financing costs.
From the top down then operating profit can quite happily get to your $55m+ (looking at it a simpler way take a net margin of 6% on gross assets of $1.1bn less central overheads) and you come to broadly the same figure.
That said aircraft lessors tend to trade at NAV so they will be capped at £3 until the increased NAV comes through.
Worryingly in terms of my failing memory, I went to buy some of these just now and realised that I had already bought some yesterday! I had planned to wait for OB's commentary on their results but obviously I decided I couldn't wait and went ahead anyhow. I had these on my watch list since OB included these in his picks for 2025.
It’s a bit of a frustrating share but also one that when it does re-rate towards NAV you’ll probably miss it if you’re not in it so I chose to buy and hold. Was surprised yesterday didn’t provoke a positive response though.
Hi Paul, it’s a no brainer for an acquirer but I’m not seeing it as the only catalyst. I think the growing appreciation for travel stocks will be the catalyst. If you look to IAG, EZJ, OTB, WIZZ, JET2, OTB and others there’s very strong sales growth, strong EPS growth, and in some strong share price growth.
There’ll probably be a headline at some point perhaps in the Mail or in Questor or Moneyweek (or all 3) saying “Read about a picks and shovels play on the red hot travel sector at a vast discount”
I havent done anything more than basic back of a fag packet research on AVAP, but bought as the CEO was EXACTLY the brash kinda guy I would want to push a business like this forward. There are a few interviews available online and he makes a strong case for the business.
Hi - good summary OB
I agree with your thesis on AVAP - I hear a lot of commentators highlighting that the ATR options are not “hidden value” on the balance sheet as if they are pointing out something profound. But what they miss is precisely what you’ve pointed out; that there is “hidden value” - it’s in the maintenance reserves!! But this latter item generally gets overlooked as the same commentators focus on the option value and then move on, satisfied they’ve dismissed the notion.
I would add that from a top down level plane lease rates are basically 12% - so yes, if the planes value has gone up lease renewals will likewise. Leasing is generally all about the cost of borrowing but when you have an environment where asset values are increasing then you get a rising NAV and increased forward lease rates. I find it hard to imagine AVAP will pay anything much over 6% when they refinance the bonds in Oct. So that will knock c. 2.5% off the cost of debt on average, so maybe $6-7m of financing costs.
From the top down then operating profit can quite happily get to your $55m+ (looking at it a simpler way take a net margin of 6% on gross assets of $1.1bn less central overheads) and you come to broadly the same figure.
That said aircraft lessors tend to trade at NAV so they will be capped at £3 until the increased NAV comes through.
Worryingly in terms of my failing memory, I went to buy some of these just now and realised that I had already bought some yesterday! I had planned to wait for OB's commentary on their results but obviously I decided I couldn't wait and went ahead anyhow. I had these on my watch list since OB included these in his picks for 2025.
Great post on Paul Scott's substack btw.
Oh dear - I’m glad you didn’t duplicate Paul !!
It’s a bit of a frustrating share but also one that when it does re-rate towards NAV you’ll probably miss it if you’re not in it so I chose to buy and hold. Was surprised yesterday didn’t provoke a positive response though.
Well, I went to buy and it said "buy more" so that was a clue!
Yes, some shares just drift, don't they?
Great article as usual. What do you think is the catalyst or are we waiting for this to be acquired?
There were acquisition rumours back in Oct, as you pointed out previously.
Would be good if it paid a reasonable divi to make waiting for a catalyst easier.
Hi Paul, it’s a no brainer for an acquirer but I’m not seeing it as the only catalyst. I think the growing appreciation for travel stocks will be the catalyst. If you look to IAG, EZJ, OTB, WIZZ, JET2, OTB and others there’s very strong sales growth, strong EPS growth, and in some strong share price growth.
There’ll probably be a headline at some point perhaps in the Mail or in Questor or Moneyweek (or all 3) saying “Read about a picks and shovels play on the red hot travel sector at a vast discount”
OB
Super write up.
I havent done anything more than basic back of a fag packet research on AVAP, but bought as the CEO was EXACTLY the brash kinda guy I would want to push a business like this forward. There are a few interviews available online and he makes a strong case for the business.
(I hold).
I agree, and I was particularly impressed with how he breezed through every single question posed to him in an investormeet call with apparent ease.
Well, I can’t definitively say he answered them all but he said that he had, and he certainly answered plenty and every single one of mine!
OB