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Signature Aviation Has Rare Resilience In Aviation Sector

Jun. 01, 2020 10:58 AM ETSignature Aviation plc (BBAVF)
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  • There will always be a need to meet potential partners in person for business arrangements to be made.
  • Private jet usage may become emphasized in the jet activity mix if businesses fly fewer people but private, where health and safety concerns can be better addressed.
  • Although much of Signature's income isn't resistant, they have very low operating leverage and 30% of revenue comes from hangar rental.
  • Signature will lead the recovery in aviation activity due to their superior pricing power to airliners.
  • Given their ample liquidity to execute on opportunistic reinvestment opportunities in beleaguered FBOs, and their more easily recovered margins, they warrant a buy rating.

For obvious reasons, aviation stocks have fallen into substantial decline. However, while some companies in aviation are struggling to stay solvent, FBOs should be robust, especially those catering to the BG&A industry. Signature Aviation (OTCPK:BBAVF) is the only publicly listed pick to give us exposure to this industry. Although their fueling services will have been at almost zero levels for several months in Q2, their real estate income which accounts for 30% of their revenue will be doing perfectly fine, as jets have no place to go but the hangars. Moreover, we think that in a recovery scenario, private jet activity will become a much more emphasized part of the jet activity mix, even if it's lower overall, because it's a much safer means of travel for company executives and their retinues. Finally, we think that this crisis may produce attractive business reinvestment opportunities for Signature, which will be much less cash strapped due to its premium locations which command high hangar rental income compared to competitors. With companies like Atlantic Aviation, part of Macquarie's infrastructure vehicle (MIC), being on sale as well, Signature could very well pick up concessions from smaller payers for strong locations at desperation multiples.

(Source: elitetraveler.com)

Recession Resistant, Even to Pandemics

In the latest trading update we see the recession resistance that we hoped for in our last article. Revenues are down sharply by around 70% in the network for the month of April, with revenues down 28% since the beginning of the year. Due to the fact that labor costs can be flexed, and that fuel costs account for around 75% of their cost structure, they are able to still generate cash of around $6 million even in the current environment thanks to low operating leverage. Their ERO business was virtually unaffected by the entire pandemic, and 30% of the continuing operations revenue seems

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Buy-side hedge professionals conducting fundamental, income oriented, long term analysis across sectors globally in developed markets. Please shoot us a message or leave a comment to discuss ideas.DISCLOSURE: All of our articles are a matter of opinion, informed as they might be, and must be treated as such. We take no responsibility for your investments but wish you best of luck.

Analyst’s Disclosure: I am/we are long BBAVF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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