Numbers

The Numbers

Avation is a small ($110M market cap) UK-listed aircraft lessor running an outsized, leveraged balance sheet ($652M debt against $244M equity) — and the market is pricing it as if the equity is permanently impaired. The shares trade at roughly 0.45× net asset value on an LSE close of 135.75p versus a stated NAV per share of $3.66. The question that decides the stock from here is not earnings power — operating cash flow rose 12% to $91.5M in FY2025 — but whether the recently completed refinancing of the $298M unsecured notes (which had a feared October 2026 maturity) is enough to pull the multiple back toward book.

Snapshot

Stated NAV per share is $3.66 (FY2025) — the market values the stock at roughly half book. Operating cash flow of $91.5M (FY2025) covers reported interest expense roughly 1.4× and approaches the entire current market cap each year.

The reported earnings collapse — and what it really was

Revenue rose 17% to $112.5M in FY2025 yet operating income fell 44% and the bottom line swung to a $7.7M loss. Two distortions account for nearly all of the drop: (1) maintenance reserves income swelled to $22.1M (vs $5.4M prior) — a non-cash accounting catch-up that flatters revenue but is paired with a corresponding lift in depreciation and impairment lines below the operating line; (2) FY2024's unusually high operating income was itself inflated by a large one-time fair-value gain. Underlying lease rental revenue grew only 2.5% to $89.9M.

Cash conversion — the earnings tell a different story than cash

The headline loss is misleading. Operating cash flow climbed every year (FY23 $48M → FY24 $82M → FY25 $92M) while reported earnings whipsawed. The gap between FY2025 OCF ($91.5M) and net income (-$7.7M) is the cleanest read: this is a depreciation/tax accounting business, not a cash-poor one. What did change in FY2025 was capex — $63M (versus near-zero before) as Avation funded an Airbus A320 acquisition and ramped toward its 10-aircraft ATR orderbook. That collapsed FCF to $28M.

Capital allocation — debt paydown was the entire story

For two full years management treated Avation as a deleveraging vehicle — virtually all internally generated cash went to repaying debt ($412M cumulative across three years). FY2025 marks the first inflection: a $16M buyback (6.7% buyback yield) and a maiden dividend appeared alongside renewed fleet investment. The shareholder yield (buybacks + debt paydown + dividend) was a striking 39% in FY2025, on the latest reported numbers.

Balance sheet — heavy, but moving in the right direction

Net debt is down $125M (–17%) in two years, but Net Debt / EBITDA actually re-stretched in FY2025 to 6.0× because the EBITDA denominator shrank when the FY2024 fair-value tailwind unwound. EBIT covered interest only 0.74× in FY2025 — the single hardest number in this report. This is why the credit-rating story (Moody's B1, Fitch B, S&P upgrade to B post-refinancing) was the swing factor for the equity.

Per-share economics — buybacks finally biting

Diluted share count fell 6.5% in FY2025 — the first material buyback in years and a clear signal that management views the equity as undervalued. Quarterly trading already shows period-end shares dropped further to 62.3M by Q2 FY2026.

Valuation history — multi-year compression below book

Avation has not closed its discount to book since the COVID downcycle. Pre-pandemic the stock cleared 1.0× book; today it sits at roughly 0.45× on the latest LSE close. P/E is uninformative at this point in the cycle (FY25 GAAP loss, FY22 and FY21 distorted by impairments). The cleaner read is price-to-tangible-book ($2.11/share) which puts the stock at ~0.85× — still a discount, but smaller than the headline P/B implies.

Stock price — 16-year context

The stock peaked at ~270p in 2019 and has spent six full years roughly halved. The 2025 trading range (123–166p) is tight, suggesting the market is waiting for resolution on (a) the unsecured note refinancing — now done, and (b) the FY2026 earnings reset once the maintenance-reserve and tax noise washes out.

Half-year trend — utilisation is not the problem

The H1 FY2026 result confirms the operating story: revenue $56M, operating income $29M, fleet fully utilised. Earnings remain modestly negative because of finance and tax line items, not because the underlying lease book is weakening.

Peer comparison — the cheapest book in the sector

Avation trades at less than half the price-to-book of its closest large-cap peers (AerCap 1.3×, Willis Lease 1.4×) and below even Air Lease (0.85×, the next-cheapest). Its leverage profile, however, is the least extreme on Net Debt/EBITDA — 6.0× compares favourably with WLFC (24×) and AER (16×). The discount is real, and it is not driven by weaker capital structure relative to the group.

Fair value — what does it take to close the gap?

Anchored on the stated NAV/share of $3.66: a bear case re-rates to 0.30× book if the refi terms prove punitive (≈ $1.10); a base case sees the stock close partly to peer-average P/B at 0.60× as the refinancing step-up clears (≈ $2.20, ~23% upside); a bull case requires Avation trading roughly in line with Air Lease near 0.90× (≈ $3.30). All three are anchored on book value — the operating economics support each of them.

Bottom line

The numbers confirm the operating story: the lease book is fully utilised, cash generation is strong and growing, deleveraging is on track, and the FY2025 GAAP loss is largely an accounting and tax-line artefact rather than a deterioration in the underlying business. They contradict the popular framing of Avation as a stranded post-COVID compounder — the stock has spent five years half-priced versus its 2019 peak despite cash-from-operations rising every year. Watch the next reporting period for (a) interest-expense walk after the bond refinancing closes, (b) operating margin once the FY2024/FY2025 maintenance-reserve and fair-value distortions wash out, and (c) the pace of buybacks now that management has shown willingness to return capital. If interest coverage clears 2.0× by H1 FY2027, the 0.45× book multiple gets very hard to defend.