Avation Post-Mortem with Jeremy Raper $AVAP

Episode Summary

Executive Summary: This episode is a post-mortem on Jeremy Raper’s activist investment in Avation (AVAP), a small London-listed aircraft lessor. Raper explains why he targeted a deeply discounted, illiquid regional-jet lessor, how he bought a large block from a winding-down hedge fund, the operational and governance complexity of unlocking value, and why the position was ultimately exited after substantial appreciation in aircraft values and partial asset monetization.

Main Topics: Why Avation was an attractive special situation (Priority: 5/5): Raper outlines the sector backdrop: aircraft leasing is asset-backed, underfollowed, and often mispriced. Avation was even more neglected due to its size, regional-jet focus, Singapore domicile, London listing, and concentration risk, creating a large discount to tangible book. Sourcing and buying the control-sized block (Priority: 5/5): The idea required obtaining a large stake from a seller who wanted out. Raper used public clues and social networking to reach the hedge fund manager, then negotiated a discounted block purchase that made the activist campaign feasible. Activism behind the scenes and operational complexity (Priority: 5/5): Once inside, Raper learned that extracting value from hard assets is far harder than spreadsheet analysis suggests. Asset sales, financing, stakeholder alignment, and legal/tax constraints proved much more complicated than expected. Capital allocation and balance-sheet repair (Priority: 4/5): The campaign focused on improving returns by refinancing debt, buying back debt below par, repurchasing shares, and monetizing purchase rights that the market was not crediting. The thesis was that cash should not be trapped in low-return growth investments while the stock traded at a large discount. Strategic endgame: sale versus stand-alone optimization (Priority: 4/5): Raper’s preferred outcome was a full company transaction into a larger, lower-cost-capital owner. That did not fully materialize, but the company did receive inbound interest and executed enough value-creation measures to justify an exit at a much higher price. Post-mortem lessons for activists and investors (Priority: 5/5): The main lesson is that public-market valuation discounts can be real, but turning them into realized value requires much more time, coordination, and interpersonal work than models imply. The episode emphasizes patience, humility, and the importance of buying with a wide margin of safety.

Key Arguments: Aircraft leasing is a structurally attractive but misunderstood asset-heavy business; when returns on book are above cost of equity, trading at a discount to book can be irrational. Avation was especially mispriced because it was small, regionally focused, thinly followed, and had meaningful airline concentration risk, making it an unloved public security. A large shareholder wanting to exit created the opportunity to buy a meaningful position at a discount and gain leverage in negotiations. Owning about 20% gave both commercial negotiating power and strategic credibility, even without outright control. The real work of activism is not the pitch deck but the operational grind: asset-by-asset review, stakeholder management, refinancing, and legal/tax navigation. The market would not reward additional capital investment while the equity traded far below intrinsic value; therefore buybacks and monetizations were preferable to new growth spending. A full company sale was the ideal thesis, but partial execution and rising aircraft values still created enough value to exit successfully. The final exit was chosen because the risk/reward had changed materially after two years and a large increase in aircraft valuations, even though the company still had upside. Behind-the-scenes engagement can itself catalyze strategic interest from buyers once a company’s structure and shareholder base change. Successful activism often depends on buying with enough discount upfront to survive incomplete execution.

Data Points: Avation share price at purchase: 79 pence per share - Block bought from the exiting hedge fund at roughly a 25% discount to the last trade Last trade price before block: About 100-105 pence per share - Market price around the time of the transaction in late September/early October 2023 Tangible book value: 140-145 pence per share - Avation was trading well below tangible book when the activist stake was acquired Block discount to last trade: About 25% - Discount achieved on the negotiated purchase of the large shareholder block Initial ownership stake: Close to 20% - Stake acquired from the hedge fund seller to become a major shareholder Expanded ownership stake: 25% - Raper says the position was later built up to this level Avation market cap: About $100 million - Described as a small listed company with substantial asset backing Aircraft count: 30-33 planes - Avation was a small lessor with a fleet concentrated in regional jets Regional-jet concentration: Majority of fleet was regional jets - These aircraft were described as less favored and more volatile than narrow-body or wide-body jets Virgin Australia exposure: Over 20% of assets - Concentration risk contributed to the discount, especially after COVID-era disruptions Aircraft value appreciation during holding period: About 25% - Aircraft values rose materially over the two-year engagement period Operational active-management score: 6 or 7 out of 10 - Raper’s rough assessment of how much of the value-creation plan was executed Exit share price range: About 138-160 pence per share - Shares were sold back to the company in several tranches at different prices Average exit price: About 150 pence per share - Raper’s approximate blended exit price from memory Stakeholder / CEO ownership: Founder/executive chairman owned roughly 14-15% - This created alignment and conflict dynamics with the activist 20% holder Sector history: Only 6-7 public aircraft lessor investable companies over much of 20 years - Raper’s rationale for why the sector remained underfollowed and inefficient

Pivotal Quotes: "I thought it was one of the best suggestivism, activism ideas I've ever seen." — Andrew Walker: Opening praise for the originality and attractiveness of the Avation special situation "Finance theory 101. And so for the longest, and I was kind of ranting and raving how this was, you know, covered by 20 different analysts." — Jeremy Raper: Explaining why aircraft lessors should not trade at a persistent discount to book if returns are strong "No matter what it says on the balance sheet or the Excel spreadsheet, when you actually get behind the curtain, it's so much more difficult than people imagine." — Jeremy Raper: Core lesson from the post-mortem about the gap between analysis and execution

Implications: For listeners, the episode shows that activist returns depend as much on execution and stakeholder management as on valuation. For the industry, it highlights how small, illiquid asset-heavy companies can remain mispriced until capital structure and ownership changes force a rerating.