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(AL – NYSE) Brian Mulvihill December 11, 2012

(AL – NYSE) Brian Mulvihill December 11, 2012. Agenda. Portfolio Overview Relevant Stock Market Prospects Macroeconomic Review Company Overview Financial Analysis Financial Projections Valuation Recommendation. Portfolio Overview. Stock Market Prospects.

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(AL – NYSE) Brian Mulvihill December 11, 2012

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  1. (AL – NYSE) Brian Mulvihill December 11, 2012

  2. Agenda • Portfolio Overview • Relevant Stock Market Prospects • Macroeconomic Review • Company Overview • Financial Analysis • Financial Projections • Valuation • Recommendation

  3. Portfolio Overview

  4. Stock Market Prospects 2013 could see continued weakness in global markets due to 3 main areas: 1) Eurozone Crisis 2) United States Fiscal Cliff 3) Slowing GDP growth in BRICs

  5. Macroeconomic Review NAICS code: 532411 (Commercial Air Transportation Rental and Leasing) The industry consists of 5 key players including Air Lease, AerCap Holdings, Aircastle LTD, FLY Leasing Limited and AIG’s former subsidiary International Lease Finance Corp. (ILF) ILF was purchased by a consortium of Chinese buyers on Monday for an implied transaction value of $5.3 bln The Chinese firms bring lending relationships in China to ILF Growth in industry is driven by airlines based in emerging markets, particularly the BRICs

  6. Stock Performance Source: Yahoo! Finance

  7. Company History

  8. Company Overview Air Lease Corporation (AL) is an aircraft leasing company launched in February 2010 by aviation pioneer Steven F. Udvar-Házy Engaged in leveraged purchases of commercial aircraft which the company, in turn, leases to airlines around the world to generate attractive returns Today, AL is the leader in its industry with the world’s youngest, most fuel-efficient aircraft operating lease portfolio

  9. SWOT Analysis

  10. Customer Base Premier global customer base of airlines that is extremely diverse Source: 2012 10-Q’s

  11. Product Base Make chart based off 10-K Chart depicts AL’s fleet of 142 aircraft as of 2012 3Q. Source: 2012 10-Q’s

  12. Lease Portfolio AL ended 2012 3Q with 142 aircraft compared with 102 aircraft as of December 31, 2011 Company’s weighted average age of the fleet is 3.4 years compared to 3.6 years as of December 31, 2011 Company is committed to purchasing an additional 291 new and used aircraft through 2017 Source: 2012 10-Q’s

  13. Portfolio Growth Current portfolio expected to increase by almost 50% by FYE 2013. Source: 2012 10-Q’s

  14. Financial Analysis AL benefits from high margins and an industry-leading revenue growth rate.

  15. Key Ratios Investors can expect a continual improvement in both ratios as net income continues to grow as the shareholders’ equity account and asset base has ballooned as a result of the IPO.

  16. Valuation

  17. Equity Method Equity cash flow for specialty finance firms is equivalent is to the free cash flow for discounted cash flow analysis.

  18. Projections and Discount Rate Discount rate used in equity method is heavily weighted towards the implied discount rate by the market.

  19. Equity Method It’s important to create a sensitivity table in order to analyze the two biggest drivers of the model, which is the discount rate and growth rate of shareholders’ equity.

  20. Public Comparables Analysis AL trades at a premium on P/B due to higher growth rates and margins. This is a trend that many analysts think will continue. Historically, the P/B multiple for the industry has been as high as 2.00x.

  21. Risks Interest rate risk as a result of ~$2 billion in outstanding floating-rate debt that are a result of being a smaller stand-alone company AIG’s subsidiary International Lease Finance Corporation’s (ILF) lawsuit concerning current CEO’s actions prior to departure from ILF Source: 10-K

  22. Investment Thesis Leading industry in growth and margins Most fuel-efficient fleet in the world Benefiting from favorable interest rate environment as the composite cost of funds is 3.97% Deserves premium in price to book multiples as analysts expect book value to increase by 7% in 2013

  23. Recommendation Buy 400 shares at market price of ~$22 ($9,084) Equity Method Valuation Range: $25-$29 Difficultly determining value based on comps

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