The global aviation market is on the cusp of one of its strongest periods in the past decade, driven by increasing passenger demand and constrained supply of new aircraft from manufacturers. Against this promising backdrop, Avation plc (LON:AVAP), a dynamic commercial aircraft lessor, is well-positioned to soar to new heights.
Zeus Capital’s recent research highlights Avation’s strategic advantages, including its diversified fleet, robust financial foundation, and forward-thinking growth strategies. The company’s financial year 2024 (FY24) results are a testament to its resilience and adaptability, showcasing significant progress post-pandemic. Fleet utilisation reached 100% for the first time since COVID-19, and the business is backed by an impressive order book for up to 36 ATR 72 aircraft, a popular model lauded for its low carbon footprint and efficiency.
A Diversified and Sustainable Fleet
Avation’s fleet of 32 aircraft is leased to 15 airlines spanning 13 countries, reflecting a well-diversified customer base. The fleet includes narrow-body, turboprop, and wide-body aircraft, with over half of its value attributed to highly sought-after models like the Airbus A320 and ATR 72-600. These aircraft not only offer operational reliability but also align with the global shift towards low-carbon aviation.
Zeus Capital’s analysts emphasise that the ATR 72-600 emits 45% less CO₂ per trip compared to similar-sized regional jets. This eco-friendly edge ensures Avation’s fleet remains relevant as airlines globally adapt to stricter carbon emission regulations.
Strong Financial Performance and Outlook
Avation’s FY24 financials underline its strategic execution. Revenues remained stable at $92.4 million, while adjusted pre-tax profits surged by 80% to $40.8 million. The company’s net debt reduced to $651.5 million, better than anticipated, thanks to strong cash collections and successful aircraft sales. Avation’s ability to manage overheads and lower financing costs has further strengthened its position.
The analysts note, “Avation’s significant 45% discount to its 285p NAV is highly unjustified. Our NAV-based fair value estimate of 250p offers a compelling 59% upside from current levels.” Such valuations underscore the market’s undervaluation of Avation’s potential.
Growth Backed by Long-Term Commitments
A key driver of Avation’s growth is its strategic purchase plan with ATR, offering substantial value through long-term commitments. This plan includes firm orders and purchase rights for up to 36 ATR 72 aircraft, ensuring Avation has the flexibility to expand its fleet or generate immediate cash flow through strategic sales. Already, the company has realised profits from selling two aircraft from this order, illustrating the tangible benefits of its purchase agreements.
Looking ahead, Avation plc is poised to benefit from positive market tailwinds, including increasing lease rates and rising aircraft valuations. The company’s proactive management and strengthened balance sheet place it in a favourable position to refinance upcoming unsecured loan notes, mitigating potential risks.
On a Final Note
Avation plc is soaring high on the wings of its strategic foresight, operational excellence, and market-savvy investments. With its focus on sustainability, diversified fleet, and commitment to delivering shareholder value, the company is well-prepared to navigate the evolving dynamics of the aviation industry. Zeus Capital’s fair value estimate underscores the significant potential for Avation’s shares to outperform, making it a noteworthy player in the global aircraft leasing market.
