Ryan Marr Long Chorus Aviation: Capitalize For Kids Conference 2018 ~ market folly

Monday, October 29, 2018

Ryan Marr Long Chorus Aviation: Capitalize For Kids Conference 2018

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Ryan Marr of Waypoint Investment Partners who pitched a long of Chorus Aviation (TSX:CHR).

Ryan Marr's Capitalize For Kids Presentation: Long Chorus Aviation

•    Charter (Air Canada Jazz) - 40% of sales
•    Maintenance - 5% of sales
•    Regional leasing - 55% of sales
•    $234mm FCF
•    7% Dividend yield
•    Charter biz
o    Predictable charter biz, no earnings vol to AC, till 2025
•    Leasing biz
o    ROE is at average of peers
•    Trades at a discount to both of their peer groups
•    Discount due to Air Canada relationship risk
•    Company’s statements understate leasing biz profitable

•    Air Canada
o    People think it will get “Aimia’d” by Air Canada
o    Jazz and Aimia spun out in 2006 From Air Canada
o    Had contracts in place above market fees to maximize value from IPO to Air Canada
o    2015 - Amend and Extend agreement
•    Reductions in markups + more capex
•    Less than $20mm reduction due to leasing provision where Q400 is leased to AC and its earnings making up the difference
o    Jazz existing separate from Air Canada is beneficial to Air Canada for cost management purposes.
o    Jazz is 45% of AC’s flights, 25% of all passengers
o    Strong market position due to this benefit for labour, and few regional competitors having any overlapping routes

•    Lease portfolio
o    Poor disclosure for the lease portfolio
o    LDD ROE
o    Why in the regional leasing?
•    Desire for diversification
•    Leasing Experience with AC
•    Leases Q400s AC
•    3rd party opportunities & Capital support
•    $200mm investment from Fairfax (TSX:FFH) to support leasing
o    Attractive and established marketing
o    Regional leasing market has little leasing
o    Competitive advantage in aircraft leasing

•    Leasing in general
o    Tax benefits
o    Capital benefits
o    Regional 20% leased vs 40% leased more generally
o    Was due to government support to regional carriers which are no longer here
o    Chorus already 3rd largest regional lease provider
•    Thinks they can take share
•    Many PE backed w/ lim. Life funds, will be sellers of their biz over time
o    Their competitive advantage is due to being an operator of aircraft
•    $10 target, 45% upside, 7% dividend to wait
o    Equity growth from capital reinvestment
o    Contract flying biz over 7 years generates entire market cap in cash

Be sure to check out the rest of the presentations from Capitalize For Kids 2018

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