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(AL – NYSE) Brian Mulvihill December 11, 2012. Agenda. Portfolio Overview Relevant Stock Market Prospects Macroeconomic Review Company Overview Financial Analysis Financial Projections Valuation Recommendation. Portfolio Overview. Stock Market Prospects.

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al nyse brian mulvihill december 11 2012
(AL – NYSE)

Brian Mulvihill

December 11, 2012

agenda
Agenda
  • Portfolio Overview
  • Relevant Stock Market Prospects
  • Macroeconomic Review
  • Company Overview
  • Financial Analysis
  • Financial Projections
  • Valuation
  • Recommendation
stock market prospects
Stock Market Prospects

2013 could see continued weakness in global markets due to 3 main areas:

1) Eurozone Crisis

2) United States Fiscal Cliff

3) Slowing GDP growth in BRICs

macroeconomic review
Macroeconomic Review

NAICS code: 532411 (Commercial Air Transportation Rental and Leasing)

The industry consists of 5 key players including Air Lease, AerCap Holdings, Aircastle LTD, FLY Leasing Limited and AIG’s former subsidiary International Lease Finance Corp. (ILF)

ILF was purchased by a consortium of Chinese buyers on Monday for an implied transaction value of $5.3 bln

The Chinese firms bring lending relationships in China to ILF

Growth in industry is driven by airlines based in emerging markets, particularly the BRICs

stock performance
Stock Performance

Source: Yahoo! Finance

company overview
Company Overview

Air Lease Corporation (AL) is an aircraft leasing company launched in February 2010 by aviation pioneer Steven F. Udvar-Házy

Engaged in leveraged purchases of commercial aircraft which the company, in turn, leases to airlines around the world to generate attractive returns

Today, AL is the leader in its industry with the world’s youngest, most fuel-efficient aircraft operating lease portfolio

customer base
Customer Base

Premier global customer base of

airlines that is extremely diverse

Source: 2012 10-Q’s

product base
Product Base

Make chart based off 10-K

Chart depicts AL’s fleet of 142 aircraft as of 2012 3Q.

Source: 2012 10-Q’s

lease portfolio
Lease Portfolio

AL ended 2012 3Q with 142 aircraft compared with 102 aircraft as of December 31, 2011

Company’s weighted average age of the fleet is 3.4 years compared to 3.6 years as of December 31, 2011

Company is committed to purchasing an additional 291 new and used aircraft through 2017

Source: 2012 10-Q’s

portfolio growth
Portfolio Growth

Current portfolio expected to increase by almost 50% by FYE 2013.

Source: 2012 10-Q’s

financial analysis
Financial Analysis

AL benefits from high margins and an

industry-leading revenue growth rate.

key ratios
Key Ratios

Investors can expect a continual improvement in both ratios

as net income continues to grow as the shareholders’ equity

account and asset base has ballooned as a result of the IPO.

equity method
Equity Method

Equity cash flow for specialty finance firms is equivalent is to the

free cash flow for discounted cash flow analysis.

projections and discount rate
Projections and Discount Rate

Discount rate used in equity method is heavily weighted towards the implied discount rate by the market.

equity method1
Equity Method

It’s important to create a sensitivity table in order to analyze the two

biggest drivers of the model, which is the discount rate and

growth rate of shareholders’ equity.

public comparables analysis
Public Comparables Analysis

AL trades at a premium on P/B due to higher growth rates and margins.

This is a trend that many analysts think will continue. Historically,

the P/B multiple for the industry has been as high as 2.00x.

risks
Risks

Interest rate risk as a result of ~$2 billion in outstanding floating-rate debt that are a result of being a smaller stand-alone company

AIG’s subsidiary International Lease Finance Corporation’s (ILF) lawsuit concerning current CEO’s actions prior to departure from ILF

Source: 10-K

investment thesis
Investment Thesis

Leading industry in growth and margins

Most fuel-efficient fleet in the world

Benefiting from favorable interest rate environment as the composite cost of funds is 3.97%

Deserves premium in price to book multiples as analysts expect book value to increase by 7% in 2013

recommendation
Recommendation

Buy 400 shares at market price of ~$22 ($9,084)

Equity Method Valuation Range: $25-$29

Difficultly determining value based on comps

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