Joan mulvihill, ceo, irish internet association asia business week dublin
(AL – NYSE) Brian Mulvihill December 11, 2012. Portfolio Overview Relevant Stock Market...
-
Upload
stephanie-copeland -
Category
Documents
-
view
214 -
download
0
Transcript of (AL – NYSE) Brian Mulvihill December 11, 2012. Portfolio Overview Relevant Stock Market...
(AL – NYSE)
Brian MulvihillDecember 11, 2012
Portfolio Overview Relevant Stock Market Prospects Macroeconomic Review Company Overview Financial Analysis Financial Projections Valuation Recommendation
Current Holdings(1)
( 1) Char t does not i ncl ude cash
ABT15%
AEO23%
DO7%JKHY
12%
MCD13%
MOS8%
PETM5%
WAG13%
ZIXI4%
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
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
Source: Yahoo! Finance
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
Strengths Weaknesses1. Top management in the industry
(CEO helped create the industry in the 1970’s)
2. Low-cost of financing coupled with youngest and most fuel-efficient fleet
1. Profitability is tied greatly to the interest rate environment
Opportunities Threats
1. Key relationships with industry leaders (Airbus and Boeing)
2. Companies in emerging markets are in need of leased aircraft
1. Lawsuit from ILF seeking damages for CEO’s actions prior to founding AL
2. Emergence of Asian financial backers in industry that bring key relationships in region
Premier global customer base ofairlines that is extremely diverse
Source: 2012 10-Q’s
Make chart based off 10-K
Source: 2012 10-Q’s
Chart depicts AL’s fleet of 142 aircraft as of 2012 3Q.
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
Current portfolio expected to increase by almost 50% by FYE 2013.
Source: 2012 10-Q’s
AL benefits from high margins and an industry-leading revenue growth rate.
2010 2011 LTMROE -8.50% 1.43% 5.28%ROA -2.29% 1.03% 3.23%
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.
2010A 2011A 2012E 2013E 2014E 2015E 2016ENet Income (52.04) 53.23 129.44 187.00 244.83 306.04 397.85
Minus Increase in Shareholder's Equity - (951) (152) (163) (174) (187) (200) Ending Shareholders' Equity 2,176 2,329 2,492 2,666 2,853 3,052
Terminal Value 2,712.54Equity Cash Flow (52.04) (898.12) (22.90) 24.00 70.42 119.42 5,963.06
Present Value of Total Equity $2,696.63Shares Outstanding 101.630
Implied Share Price $26.53
Equity cash flow for specialty finance firms is equivalent is to the free cash flow for discounted cash flow analysis.
Assumptions 2012E 2013E 2014E 2015E 2016EGrowth in Net Income 143% 44% 31% 25% 30%Terminal Growth Rate 3%Discount Rate 18%Growth Rate of Shareholder's Equity 7%
Discount rate used in equity method is heavily weighted towards the implied discount rate by the market.
Beta 0.86Adj. Beta 0.91MRP 6.00%Risk-free rate 2.80%
CAPM 8.23%
Implied discount rate 20.50%
Discount Rate 18.05%
Growth Rate of Shareholders' Equity
6.50% 6.75% 7.00% 7.25% 7.50%16.00% $31.18 $31.12 $31.07 $31.01 $30.9617.00% $28.88 $28.82 $28.76 $28.71 $28.6518.00% $26.85 $26.79 $26.74 $26.68 $26.6219.00% $25.05 $25.00 $24.94 $24.88 $24.8220.00% $23.45 $23.39 $23.33 $23.27 $23.21D
isco
un
tR
ate
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.
Market Value
Equity LTM NTM LTMTarget Company Value Net Income Net Income Book Value
Air Lease Corporation $2,295 19.64x 12.8x 1.00x
Comparable Companies
AerCap Holdings N.V. $1,997 8.72x 7.17x 0.73xAircastle LTD $841 21.74x 7.41x 0.60xFLY Leasing Limited $312 41.56x 6.28x 0.65x
High 41.56x 7.41x 0.73xAverage 24.01x 6.95x 0.66xMedian 21.74x 7.17x 0.65xLow 8.72x 6.28x 0.60x
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.
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
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
Buy 400 shares at market price of ~$22 ($9,084)
Equity Method Valuation Range: $25-$29
Difficultly determining value based on comps