Amedeo Air Four Plus (LON: AA4) has jumped near 35% as the aircraft leasing company announces a return of capital to shareholders and the resumption of dividends. The underlying here is clearly that the business sector has improved from those lockdown blues.
The ownership of jet aircraft is a slightly odd market. Some airlines own their own ‘planes, some own some they fly, others own none at all. This leaves room for specialists like Amedeo Air Four Plus, who provide the capital to actually buy the ‘planes. These are then leased to the airlines. The income from the lease pays for the aircraft itself and a return on the capital invested.
There’s also a secondary market in such ‘planes and Amedeo, as with other such companies, works to be able to purchase when stock is available and then lease out. That is, there is trading in the assets – those airplanes – as well as simple ownership.
The announcement is that Amedeo will buy back some half of the shares in issue. This is a compulsory repurchase, one share to be tendered back to the company for each two held. The repurchase price is 34.55 pence per share which explains the jump in the share price to 31 pence. The company has also announced that dividends will resume in Q1 2022.
It’s possible to think that there’s still an arbitrage opportunity here. That the price will continue to move, which it might as the market digests this news. The true indication here though is something more general about the business sector.
Given lockdowns and the slaughter of air travel, this past two years the aircraft leasing business has taken something of a beating. Share prices are severely depressed. At which point Amedeo is buying in cheap stock at less than the directors think it is really worth – that’s always the reason for a share buyback, that the management thinks the shares are worth more than the market does.
That’s fine, the directors have more and more detailed knowledge of business conditions than the rest of us do. But this is also likely to be true of other companies in the same sector. The hunt is therefore on for the other companies that might be thinking the same thing.
The aircraft leasing business is now recovering and yet share valuations don’t reflect this. So, which of such companies will take the same option, buying in shares at what management perceives to be less than full asset value?
This is not unusual in a bombed-out sector when the operating market recovers. As it is also not unusual to regard a company like Amedeo Air Four Plus as being not just the one opportunity, but as a signifier of what might happen across the sector more generally.
Of course, the Omicron Variant might derail things for a time, but given that the world is getting back to normal, travel is happening again, then that layer down in the aircraft business, the lessors, could be about to revive. Which might well lead to a wave of opportunistic share buybacks.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.