Avation Plc Undervalued Equity Report

21st April 2016

Ticker symbol (AVAP)

Market Cap 79 million
Exchange London
PE Ratio 8.7
Current share price 142p (GBP)
Estimated share value 255P (GBP)

Past performance is no guarantee of future performance

About the Company

Avation Plc is a specialist commercial passenger aircraft leasing company managing a fleet of
aircraft which it leases to airlines across the world. Their customers include Virgin Australia,
Thomas Cook, Condor, Air France, Air Berlin, Vietjet Air, Fiji Airways and UNI Air. Avation
also has a subsidiary that supplies aircraft parts and spares to a range of operators,
internationally.

Our Assessment

Avation Plc is currently trading at a market cap of 79million while their book value is 88
million ($127million) of which 75 million ($108million) is cash. Meaning they can be
bought at a price below their tangible book value and just above their cash value.

Avation Plc has grown their revenue consistently over the last 5 years from $27million in
2010 to $60million in 2015. Their net book value has grown from $36million to $127million

Page 1 of 2
This document was published by Reid Green & co Ltd www.reidgreenco.co.uk
 and their net income has grown from $3million to $13million during the same 2010 to 2015
period. Meanwhile as indicated by the chart above Aviations share price has remained
fairly stable between 2013 and 2015 ranging from 1.02 to 1.77. Over the last 3-5 years the
company has been over valued compared to its business fundamentals. 2016 is the first
time the business fundamentals have caught up to the stock price and the company has
traded at a price below its book value and at a price that doesnt reflect the companys
growth prospects, thus making the company currently undervalued.

Under the conventional method of calculating free cash flow, (which is net cash generated
from operations minus capital expenditures), the company generated a negative free cash
flow since 2012 peaking to - $67million in 2015, however during that period the company
has financed its acquisitions and capital expenditures through various forms of debt not its
cash from operations. This leaves the cash generated from operations unencumbered and
the free cash flow as a positive number growing from $16mllion in 2010 to $43million in
2015.

Our perspective

We believe Avation Plc is an aggressive growth company, trading at a slightly depressed

price, which makes it a solid addition to an equity portfolio. We have seen the event driven
asset management firm Ocean Wood Capital acquire a 28% stake in the company. Ocean
woods have a solid track record of investing in and profiting from companies that are
undervalued, therefore we see their major position as an indication that they share our
views about the companys undervaluation, its future prospects and its possibility as a
takeover target.

Our estimation of the companys value is roughly 255p per share, which equates to a market
cap of 141 million. Our valuation takes into account the companys tangible assets which
are mostly comprised of their aircraft fleet, but mostly its simple, clear but aggressive
growth strategy of using leverage to acquire aircrafts and then leasing them out to airlines.

In light of the above, with a market cap of 79m and an estimated value of 141 million we
believe that Avation Plc is trading at a 55% discount to its underlying value (implying a 78%
upside). While this does not constitute a personal recommendation or investment advice,
we rate Avation Plc as a buy at the time of writing.

Joash Reid Managing Director

Our views do not constitute a recommendation to buy or sell the investment mentioned. Investments and income
arising from them can fall in value and you may get back less than you originally invested. Before making an investment
you should always conduct your own research and/or consult your financial and tax advisers.

Page 2 of 2
This document was published by Reid Green & co Ltd www.reidgreenco.co.uk