Canaccord Genuity lowers target price on Avation

Analysts at Canaccord Genuity lowered their target price on commercial passenger aircraft leasing business Avation from 280.0p to 255.0p on Thursday, a more than 50% net asset value discount despite upward pressure on fleet and order book values.

Canaccord Genuity said that Avation had exited FY24 with a fleet of 34 aircraft and revenues of $92.4m, while net debt was reduced to $651.5m and NAV per share came in at $3.62.

The Canadian bank thinks FY25 sees further scope for improvement before moving to fleet growth in FY26 and increased focus long-term on a lower-CO2 ATR, A220 and A320NEO fleet and noted that FY24 demonstrated strong control in administrative costs, an improved balance sheet from reduced and reducing net debt, and improving risk/reward for equity.

"We think Avation continues to benefit from exposure to structural aviation growth and lessors gaining an increasing share of airline fleets," said Canaccord, which reiterated its 'buy' rating on the stock.

"We see >7% EBITDA 2024-30E CAGR, expanding NAV (which lags fleet growth), and equity expansion in the EV. Approaching 2026, we see potential catalysts including: eight leases due for renewal in FY26 could offer scope for rental rate improvement; and, new capital is due as the October 2026 bond matures. As USD interest rates potentially reduce and leasing risk reduces, we believe this could potentially deliver further risk/reward improvement for the shares."

Reporting by Iain Gilbert at Sharecast.com