Intrinsic value of Aircastle - AYR

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$23.55

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$23.55

 
Intrinsic value

$6.06

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence* premium content

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Our model is not good at valuating stocks of financial companies, such as AYR.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AYR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -5.62
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  773
  788
  807
  827
  851
  876
  905
  935
  969
  1,005
  1,043
  1,085
  1,129
  1,175
  1,225
  1,278
  1,334
  1,393
  1,456
  1,522
  1,592
  1,666
  1,744
  1,826
  1,912
  2,004
  2,099
  2,200
  2,306
  2,418
  2,536
Variable operating expenses, $m
 
  509
  521
  534
  549
  566
  584
  604
  626
  649
  674
  701
  729
  759
  792
  826
  862
  900
  941
  983
  1,029
  1,076
  1,127
  1,180
  1,235
  1,294
  1,356
  1,421
  1,490
  1,562
  1,638
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  410
  509
  521
  534
  549
  566
  584
  604
  626
  649
  674
  701
  729
  759
  792
  826
  862
  900
  941
  983
  1,029
  1,076
  1,127
  1,180
  1,235
  1,294
  1,356
  1,421
  1,490
  1,562
  1,638
Operating income, $m
  363
  279
  286
  293
  301
  310
  320
  331
  343
  356
  369
  384
  400
  416
  434
  452
  472
  493
  515
  539
  564
  590
  617
  646
  677
  709
  743
  779
  816
  856
  898
EBITDA, $m
  668
  590
  603
  619
  636
  655
  676
  700
  724
  751
  780
  811
  844
  879
  916
  956
  998
  1,042
  1,089
  1,138
  1,191
  1,246
  1,304
  1,365
  1,430
  1,498
  1,570
  1,645
  1,725
  1,808
  1,896
Interest expense (income), $m
  225
  230
  235
  241
  248
  257
  266
  275
  286
  298
  310
  324
  338
  353
  370
  387
  406
  425
  446
  468
  491
  515
  541
  568
  596
  627
  658
  692
  727
  764
  803
Earnings before tax, $m
  157
  49
  51
  52
  53
  54
  55
  56
  57
  58
  59
  60
  61
  63
  64
  65
  67
  68
  70
  71
  73
  75
  77
  79
  81
  83
  85
  87
  90
  92
  95
Tax expense, $m
  13
  13
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  17
  18
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
Net income, $m
  151
  36
  37
  38
  38
  39
  40
  41
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  56
  57
  59
  60
  62
  64
  65
  67
  69

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  456
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  7,245
  6,916
  7,075
  7,257
  7,461
  7,688
  7,936
  8,206
  8,499
  8,814
  9,152
  9,514
  9,900
  10,311
  10,748
  11,212
  11,703
  12,223
  12,773
  13,354
  13,968
  14,615
  15,298
  16,018
  16,776
  17,575
  18,416
  19,301
  20,232
  21,212
  22,243
Adjusted assets (=assets-cash), $m
  6,789
  6,916
  7,075
  7,257
  7,461
  7,688
  7,936
  8,206
  8,499
  8,814
  9,152
  9,514
  9,900
  10,311
  10,748
  11,212
  11,703
  12,223
  12,773
  13,354
  13,968
  14,615
  15,298
  16,018
  16,776
  17,575
  18,416
  19,301
  20,232
  21,212
  22,243
Revenue / Adjusted assets
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
  0.114
Average production assets, $m
  6,057
  6,178
  6,320
  6,483
  6,665
  6,867
  7,089
  7,330
  7,592
  7,873
  8,176
  8,499
  8,844
  9,211
  9,601
  10,015
  10,454
  10,919
  11,410
  11,929
  12,478
  13,056
  13,666
  14,309
  14,986
  15,700
  16,451
  17,241
  18,073
  18,949
  19,869
Working capital, $m
  0
  -340
  -348
  -357
  -367
  -378
  -390
  -403
  -418
  -433
  -450
  -467
  -486
  -507
  -528
  -551
  -575
  -601
  -628
  -656
  -686
  -718
  -752
  -787
  -824
  -864
  -905
  -948
  -994
  -1,042
  -1,093
Total debt, $m
  4,629
  4,606
  4,730
  4,871
  5,030
  5,207
  5,400
  5,611
  5,838
  6,084
  6,347
  6,629
  6,930
  7,250
  7,591
  7,952
  8,335
  8,740
  9,168
  9,621
  10,099
  10,603
  11,135
  11,696
  12,287
  12,909
  13,564
  14,253
  14,979
  15,742
  16,545
Total liabilities, $m
  5,410
  5,388
  5,512
  5,653
  5,812
  5,989
  6,182
  6,393
  6,620
  6,866
  7,129
  7,411
  7,712
  8,032
  8,373
  8,734
  9,117
  9,522
  9,950
  10,403
  10,881
  11,385
  11,917
  12,478
  13,069
  13,691
  14,346
  15,035
  15,761
  16,524
  17,327
Total equity, $m
  1,834
  1,529
  1,564
  1,604
  1,649
  1,699
  1,754
  1,814
  1,878
  1,948
  2,023
  2,103
  2,188
  2,279
  2,375
  2,478
  2,586
  2,701
  2,823
  2,951
  3,087
  3,230
  3,381
  3,540
  3,708
  3,884
  4,070
  4,265
  4,471
  4,688
  4,916
Total liabilities and equity, $m
  7,244
  6,917
  7,076
  7,257
  7,461
  7,688
  7,936
  8,207
  8,498
  8,814
  9,152
  9,514
  9,900
  10,311
  10,748
  11,212
  11,703
  12,223
  12,773
  13,354
  13,968
  14,615
  15,298
  16,018
  16,777
  17,575
  18,416
  19,300
  20,232
  21,212
  22,243
Debt-to-equity ratio
  2.524
  3.010
  3.020
  3.040
  3.050
  3.060
  3.080
  3.090
  3.110
  3.120
  3.140
  3.150
  3.170
  3.180
  3.200
  3.210
  3.220
  3.240
  3.250
  3.260
  3.270
  3.280
  3.290
  3.300
  3.310
  3.320
  3.330
  3.340
  3.350
  3.360
  3.370
Adjusted equity ratio
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221
  0.221

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  151
  36
  37
  38
  38
  39
  40
  41
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  56
  57
  59
  60
  62
  64
  65
  67
  69
Depreciation, amort., depletion, $m
  305
  310
  318
  326
  335
  345
  356
  368
  381
  396
  411
  427
  444
  463
  482
  503
  525
  549
  573
  599
  627
  656
  687
  719
  753
  789
  827
  866
  908
  952
  998
Funds from operations, $m
  467
  346
  355
  363
  373
  384
  396
  409
  423
  438
  454
  471
  489
  509
  529
  551
  574
  598
  624
  652
  680
  711
  743
  776
  812
  849
  889
  930
  974
  1,019
  1,068
Change in working capital, $m
  -1
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
Cash from operations, $m
  468
  543
  362
  372
  383
  395
  408
  422
  437
  453
  471
  489
  508
  529
  551
  574
  598
  624
  651
  680
  710
  742
  776
  812
  849
  888
  930
  974
  1,019
  1,068
  1,118
Maintenance CAPEX, $m
  0
  -304
  -310
  -318
  -326
  -335
  -345
  -356
  -368
  -381
  -396
  -411
  -427
  -444
  -463
  -482
  -503
  -525
  -549
  -573
  -599
  -627
  -656
  -687
  -719
  -753
  -789
  -827
  -866
  -908
  -952
New CAPEX, $m
  -1,331
  -121
  -142
  -162
  -182
  -202
  -222
  -241
  -261
  -282
  -302
  -323
  -345
  -367
  -390
  -414
  -439
  -465
  -491
  -519
  -548
  -578
  -610
  -643
  -677
  -713
  -751
  -791
  -832
  -875
  -921
Cash from investing activities, $m
  -646
  -425
  -452
  -480
  -508
  -537
  -567
  -597
  -629
  -663
  -698
  -734
  -772
  -811
  -853
  -896
  -942
  -990
  -1,040
  -1,092
  -1,147
  -1,205
  -1,266
  -1,330
  -1,396
  -1,466
  -1,540
  -1,618
  -1,698
  -1,783
  -1,873
Free cash flow, $m
  -178
  117
  -90
  -108
  -125
  -142
  -158
  -175
  -192
  -210
  -227
  -245
  -264
  -283
  -303
  -323
  -344
  -366
  -389
  -412
  -437
  -463
  -490
  -518
  -547
  -578
  -610
  -644
  -679
  -716
  -755
Issuance/(repayment) of debt, $m
  465
  100
  124
  142
  159
  176
  193
  211
  228
  246
  263
  282
  301
  320
  340
  361
  383
  405
  428
  453
  478
  504
  532
  561
  591
  622
  655
  689
  726
  763
  803
Issuance/(repurchase) of shares, $m
  -37
  0
  1
  6
  11
  15
  20
  25
  29
  34
  39
  43
  48
  53
  59
  64
  70
  76
  82
  88
  95
  102
  109
  116
  124
  132
  141
  150
  159
  169
  179
Cash from financing (excl. dividends), $m  
  555
  100
  125
  148
  170
  191
  213
  236
  257
  280
  302
  325
  349
  373
  399
  425
  453
  481
  510
  541
  573
  606
  641
  677
  715
  754
  796
  839
  885
  932
  982
Total cash flow (excl. dividends), $m
  377
  217
  34
  34
  34
  35
  35
  35
  36
  36
  36
  37
  37
  37
  38
  38
  39
  39
  40
  40
  41
  41
  42
  43
  43
  44
  45
  46
  46
  47
  48
Retained Cash Flow (-), $m
  -54
  -28
  -35
  -40
  -45
  -50
  -55
  -60
  -65
  -70
  -75
  -80
  -85
  -91
  -97
  -102
  -109
  -115
  -122
  -128
  -136
  -143
  -151
  -159
  -168
  -177
  -186
  -196
  -206
  -217
  -228
Prev. year cash balance distribution, $m
 
  333
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  523
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  10.20
  10.71
  11.25
  11.81
  12.40
  13.02
  13.67
  14.35
  15.07
  15.82
  16.61
  17.45
  18.32
  19.23
  20.20
  21.21
  22.27
  23.38
  24.55
  25.77
  27.06
  28.42
  29.84
  31.33
  32.90
  34.54
  36.27
  38.08
  39.99
  41.98
PV of cash for distribution, $m
 
  474
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  99.9
  99.5
  98.9
  97.9
  96.8
  95.5
  94.0
  92.3
  90.6
  88.7
  86.7
  84.6
  82.5
  80.4
  78.2
  76.0
  73.7
  71.5
  69.3
  67.1
  64.9
  62.8
  60.7
  58.6
  56.6
  54.6
  52.6
  50.7
  48.8

Aircastle Limited, through its subsidiaries, acquires, leases, and sells commercial jet aircraft to airlines. The company also invests in other aviation assets. As of December 31, 2016, its aircraft portfolio comprised 206 aircraft leased to 71 lessees located in 36 countries. Aircastle Limited was founded in 2004 and is based in Stamford, Connecticut.

FINANCIAL RATIOS  of  Aircastle (AYR)

Valuation Ratios
P/E Ratio 12.3
Price to Sales 2.4
Price to Book 1
Price to Tangible Book
Price to Cash Flow 4
Price to Free Cash Flow -2.1
Growth Rates
Sales Growth Rate -5.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.8%
Cap. Spend. - 3 Yr. Gr. Rate 1%
Financial Strength
Quick Ratio 4
Current Ratio NaN
LT Debt to Equity 245.7%
Total Debt to Equity 252.4%
Interest Coverage 2
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 4.8%
Return On Total Capital 2.4%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 8.4%
Return On Equity - 3 Yr. Avg. 7.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 88.9%
EBITDA Margin - 3 Yr. Avg. 80.7%
Operating Margin 47%
Oper. Margin - 3 Yr. Avg. 39.3%
Pre-Tax Margin 20.3%
Pre-Tax Margin - 3 Yr. Avg. 16.5%
Net Profit Margin 19.5%
Net Profit Margin - 3 Yr. Avg. 15.6%
Effective Tax Rate 8.3%
Eff/ Tax Rate - 3 Yr. Avg. 10.3%
Payout Ratio 51%

AYR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AYR stock intrinsic value calculation we used $773 million for the last fiscal year's total revenue generated by Aircastle. The default revenue input number comes from 2016 income statement of Aircastle. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AYR stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.2%, whose default value for AYR is calculated based on our internal credit rating of Aircastle, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Aircastle.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AYR stock the variable cost ratio is equal to 64.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AYR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.1% for Aircastle.

Corporate tax rate of 27% is the nominal tax rate for Aircastle. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AYR stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AYR are equal to 783.6%.

Life of production assets of 19.9 years is the average useful life of capital assets used in Aircastle operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AYR is equal to -43.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1834 million for Aircastle - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 78.326 million for Aircastle is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Aircastle at the current share price and the inputted number of shares is $1.8 billion.


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