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Aircastle (AYR) Initiated At 'Buy' By Deutsche Bank

 December 13, 2012 01:57 PM

(By Balaseshan) Deutsche Bank analyst Richa Talwar initiated coverage of Aircastle Ltd. (NYSE: AYR) with a "buy" rating and $17 price target, saying the high-utility commercial jet aircraft leasing company is a deep value investment opportunity with an attractive yield.

Talwar said the company has a portfolio well positioned to benefit from an upturn in the global economy and aircraft values.

The analyst is of the view that AYR is tied to an industry that is still very much in its infancy globally, with strong prospects for long-term growth; and AYR has an attractive valuation, supported by a relatively high dividend (yielding 5.5%) and share buybacks.

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Talwar thinks Aircastle has the key attributes of a successful lessor.

The company has an impressive financial track record, with historical annual EBITDA and net margins averaging 94% and 25%, respectively. It is well-capitalized, with demonstrated access to multiple sources of financing, and well-diversified, with 68 airline customers across 36 countries, the analyst said.

Moreover, the analyst thinks AYR has a savvy management team, who has successfully navigated through peaks and troughs of the business cycle while generating shareholder value throughout the company's history.

Relative to its peer group, Aircastle's fleet includes a larger percentage of older, widebody and cargo aircraft, which are typically considered to be higher-risk assets, the analyst noted.

Although Talwar tends to see such assets fall out of favor during weak economic periods, the analyst believes they generate better returns during economic recoveries. Hence, Talwar expects risk-oriented names such as AYR to outperform as the global economic recovery picks up steam.

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Furthermore, the analyst has started to see evidence of improving aircraft lease rates, which are usually a harbinger of higher aircraft values. If this continues, it could ultimately result in a higher valuation for Aircastle's fleet which could further translate into a higher AYR share price.

Global air travel is poised for significant growth, driven mainly by emerging markets (e.g., Boeing/Airbus predict that global traffic will grow annually by about 5% over the next 20 years), Talwar noted.

With leasing becoming an increasingly popular trend (market share of lessors up to 35% in 2011 from more than 5% in 1985), the analyst expects growth in air travel to provide continued growth opportunities for AYR.

AYR remains unchanged from previous close of $12.11. The stock has been trading between $10.77 and $14.55 for the past 52 weeks.



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