Daily Stock Market Report (Thur 27 Feb 2025) – AVAP

Good morning! It has been a busy week for updates, let’s see what’s in store for us today.

The Agenda is under construction.

Let’s kick things off with a backlog section from Mark on AVAP.

Spreadsheet that accompanies this report: updated to 14/2/2025.

140p (£94m) – HY Results – Mark (I hold) – AMBER/GREEN

Everything seems to be going in the right direction here:

· Revenue and other income increased to US$55.4 million (2023: US$46.3 million) displaying continued business momentum;

· EBITDA increased to US$55.6 million (2023: US$38.3 million) demonstrating enhanced cash generation;

However, the rise appears to be largely due to how maintenance is accounted for:

So the operating profit has risen a much more lowly 7%, and EPS is just 1.23c. This has caused a major downgrade in forecasts for the current year. For example, Zeus say:

We adjust our forecasts to account for non-cash movements, as well as incorporating the additional revenues and costs from the A320 purchased. As a result, our revenue expectation in FY25E increases to $102.3m (from $94.8m), this also reflecting maintenance reserve revenues, leading to PBT of $0.9m (from $7.4m) after non-cash movements, with our net debt forecast increasing to $624.4m, reflecting the acquisition of the A320, partly offset by the strong cash performance. For FY26E, we look for revenue of $99.7m (from $95.8m), leading to PBT of $8.4m (from $8.1m).

All of this makes it perhaps more important to focus on cash flow rather than accounting earnings, and here things look better:

Given the debt, we really need to be looking on an EV basis. Annualising the OCF works out to be 6.7x EV/OCF after taxes & financing, so this appears to be good value on that basis. There is also the potential for the finance expense to reduce over time. Earlier this month, the company said that refinancing $85m of debt would lead to $4.8m of improved annual cash flow. Any additional refinancing could be material and will not be in forecasts.

Despite the strong cash flow, the dividend paid to shareholders is very low, with the money instead spent on debt reduction and further building their fleet. In light of this, the acquisition announced today was perhaps not the one shareholders wanted (many AVAP shareholders…

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