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Simon Moore, CFA
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I'm a CFA charter holder, MBA (Kellogg School of Management) I work for FutureAdvisor, a fast growing online investment advisor.
My company:
FutureAdvisor
My blog:
Strategic PPM
My book:
Strategic Project Portfolio Management
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  • Buy Thesis on AYR
    Aircastle is a company I own shares in due to it showing up in a small cap value screen. It is strong on price to earnings (c. 9x), price to book and price to cashflow. Inaddition the 4% dividend yield is a positive. I would expect about $1 of earnings this year, which should yield a price around $15, assuming a reversion to a more normalized p/e for the sector. I also anticipate returns on any sort of lending activity to increase over the next couple of years, based on supply and demand - the supply of financing has been sharply curtailed and therefore returns on financing should rise, per basic economic theory.

    The concerns on AYR are weaknesses and bankruptcies in the airline sector, which seem to be abating, but which may hit leasing with a slight lag, and potential bank covenant breach in the first half of next year, which I think is less likely to happen than others perhaps expect given the financial soundness of the company. Plus a recent covenant test appeared to be a non-event for them, and I doubt their ratios will change materially next year. There's also the risk of the company doing an overpriced acquisition or otherwise wasting capital, but I don't see the risk with AYR as being that different to any other stock.

    I don't have any sort of catalyst for this stock and as a small cap without much attention, it may remain cheap, but I'll be happy to hold it for it's 4% yield. I'd sell it above $16 at which point I'd consider it fair value, if it fell below $7 I'd consider adding more, but I don't have sufficient conviction to have it as a significant (7%+) part of my portfolio.


    Disclosure: Long AYR at time of writing

    Disclosure: Long AYR at the time of writing
    Tags: AYR
    Oct 31 1:52 AM | Link | Comment!
  • Potential HTCO red flag - Q3 '09 tax reversal boosts earnings substantially
    I've seen HTCO (the Minnesota and Iowa telecoms provider) do well on a number of screens, for example 10.2x P/E and 5.8% yield and the recent mention as a fast growing small business by Forbes. I was going to put a limit order in for them this week, but then as final due diligence I read the details of their 10Q (quarter ended 9/30 '09):

    "Net income totaled $6,106,000 in the third quarter of 2009 up substantially from the $2,072,000 reported in the same quarter of last year and up from the $2,117,000 of the second quarter of 2009. A reduction of income taxes accrued, which related to the expiration of a statute of limitations added $4,454,000 to third quarter net income. Without the benefit of this income tax reduction, net income in the third quarter of 2009 would have been $1,652,000, down $420,000 or 20.3% compared to the third quarter of 2008."

    Of course this is just one data point, but it's a material one in my view – backing out the reversal of an income tax provision puts HTCO on a 16.2x TTM P/E (not 10.2x) and the resulting underlying earnings are falling rather than rising, of course the yield would be unchanged, so you may still wish to invest for that reason.

    The reason I'm concerned about the reversal of this tax provision is that it's unlikely to represent sustainable cash earnings for the business (i.e. they are unlikely to be able to do it again in Q3 2010). Hence, there may be good reasons to buy HTCO, but a low trailing twelve month p/e does not appear to be one of them.


    Disclosure: No position in HTCO
    Tags: ENVE
    Jan 10 11:15 AM | Link | Comment!
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