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$AER reported another great Q but there's still plenty to play for (+50% from here to fair value imho). This is still a fundamentally misunderstood business and my largest long. Here's why:
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At $54.5/shr you pay ~79% of book value today...for a book equity that has compounded at 15% the last 5yrs and mid-teens+ the last 10yrs...
This is a financial business that DID NOT LOSE $$ in the GFC (and in fact has not lost money once in its 18yr listed history)...
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This is a financial business that DID NOT LOSE $$ in the GFC (and in fact has not lost money once in its 18yr listed history)...
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Simply put, ff this business was called 'JP Morgan Aircraft Finance' and was putting up these kinds of RoEs consistently, it would trade at >1.5x book (ie ~$100/shr today) and be considered good value.
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Further, mgmt has no use for excess capital but to buy back shares - which they have done at rate of 8-9% pa, the last 5yrs...
...and are willing to sell down ~5% of their fleet per year at a large PREMIUM to book value to fund buying stock at discount to book = accretive!
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...and are willing to sell down ~5% of their fleet per year at a large PREMIUM to book value to fund buying stock at discount to book = accretive!
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Operationally the biz has never been less risky than it is today (longest locked in avg lease term, 7.4yrs, in the industry; and highest share of new technology aircraft, at 53%)...which is perplexing given the stock is near as cheap as it has been in last 5yrs (on P/B, P/E)
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Today, there was a key change in tone on the CC, emphasizing the commitment to returning capital above and beyond growth capital or M&A. They also raised core leasing EPS to $6.7/shr this yr - ie at curr px the core biz is on 8x P/E + gives you all trading gains for free
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More widely, every time one of these cos gets traded it is at a premium to book value (CIT to Avolon, Avolon to Bohai, etc). $AER is the largest platform, the best operator, with the best mgmt and track record - if/when they decide to exit, the price will be much > book value
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But the business is returning to HSD earnings growth (ex buybacks, etc) which should deliver mid-teens book growth at least through the current order cycle (thru 2023)...post then the biz could be up to sale (to the Japanese?), who knows...
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For now, you get the avowed mkt leader with perhaps the cleanest fleet; the best commitment to capital returns; the most consistent operating + trading performance; and an unmatched financial track record, at ~8x core EPS and a 20% discount to a book compounding at 15%...
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