Canaccord nearly doubles target for Avation, sees strong demand for aircraft leasing

Analysts at Canaccord Genuity stood by their 'buy' recommendation for shares of Avation, alongside a steep hike in their target price, telling clients that the 2023 financial year would see the company build on the prior year's progress.

In FY 2022, the company had moved into profitability as it optimised its assets.

Now, the commercial aircraft leasing outfit was expected to build on that progress as airlines rebuilt their "aging and depleted" fleets and moved to low Co2 aircraft strategies.

In particular, the analysts expected lease utilisation rates and asset values to recover fastest in the case of ATRs, A220 and A320-321 jets.

Not coincidentally, those made up more than 94% of Avation's fleet by count and approximately 83% of its value estimates.

"Airlines retired large swathes of older fleet during Covid-19, and will face ongoing renewal and replacement needs (as remaining fleet continues to age)," analyst Damian Brewer said in a research note sent to clients.

But, with their own balance sheet challenges stretched (and interest rates rising), we think airlines will be more reliant on leasing to provide new aircraft financing."

Brewer also flagged the company's intention of exploiting any potential market opportunities to repurchase its own debt, given the roughly 21% discount at which it was trading.

"We see Avation focused on a near-term price/maximum utilisation (not fleet growth) strategy that we think will see NAV/share CAGR of >10% over FY21-FY26E."

Brewer lifted his target price for shares of Avation from 149.0p to 290.0p.