Canaccord Genuity has initiated coverage on aircraft leasing company Avation PLC (LON:AVAP) with a ‘buy’ recommendation and a 300p target price.
The broker, which has just been appointed joint broker to the company, said Avation is a relatively low-risk, asset-backed business with excellent growth prospects.
“Future growth is reinforced by the virtuous circle of more aircraft (types), more blue chip airlines on long term leases, enhanced scale and diversification, lower costs of debt through improved credit ratings and improved margins and earnings growth,” Canaccord Genuity asserted.
As for the “low-risk” bit of the equation, the broker noted that counterparty risk is kept at a low level through having a broad spectrum of commercially viable airline customers in Europe and Asia-Pacific.
Avation’s customers include EasyJet, Air France, Virgin Australia, EVA, Thomas Cook, Philippine Airlines and VietJet.
Although well-publicised airline collapses might indicate to the contrary, Avation is serving a sector where the growth prospects are decent; aeroplane makers Boeing and Airbus predict average growth of 4.4%-4.7% for the next 20 years.
“Contrary to airlines, leasing companies like Avation have excellent long term revenue visibility and are consistently profitable,” the broker said.
The company has doubled the value of its fleet every three years in each of the past five years, and with roughly half of the 35,000-40,000 global aircraft deliveries over the next 20 years expected to be financed by lessors, there should be plenty of growth.
With the share price trading at a 12% discount to its net asset value per share (NAV), Canaccord thinks the shares are a bargain at 214p and that they should be trading a premium to NAV.