WLFC - Willis Lease

[walkie518]

Mcap: $142m

p/cash flow: 1.4x

p/book: 0.65x

p/sales: 0.68x

avg vol: 32k shs/day

 

EPS:

2016: $2.05

2015: $0.92

2014: $0.89

 

In many ways, this looks like a very cheap company.  Willis Lease is engaged in stock buybacks...caught my eye when it wound up on Mohnish Pabrai's cannibal list.  You can find his blog post here (also published on Forbes): http://www.chaiwithpabrai.com/blog/the-new-2017-2018-uber-cannibals

 

Willis Lease is highly levered: total assets at $1.34B and total liabilities at $1.12B leaving equity at $216m.  There is a fair amount of risk here, but if put in the speculative bucket, at least on the broad strokes, it looks pretty cheap.

 

Willis owns airplane engines and leases them.  Management argues that there is an ever increasing opportunity to lease more and more parts as it's cheaper for the big 3 than to buy replacements or new planes.

 

There is some nepotism.  The firm's is run by Charles Willis.  Austin Willis, Charles' son, is a director.  Austin has been in the aviation business for some time and Charles bought some assets from Austin.  Could have been a bad deal for Willis shareholders, but this isn't 100% clear to me as far as I have come in my diligence.  At the same time, earnings have been on a very steady upward march and management's claim that tangible book is at $30.66/sh (as of Dec 31, 2016) speaks to a large disconnect between market pricing and the financial reporting. 

 

Another concern is the amount of leverage...cuts both ways.  That said, if there is nothing in the figures I'm missing, the underlying value of the business is being overlooked by the markets. 

 

Has anyone looked at this?  I didn't see a thread. 

[petermeisl]

I also got interested in this one based on Mohnish Pabrai's cannibal list.  Guy Spier posted a paper written by one of his analysts or interns at: https://aqfd.docsend.com/view/3d57ze4    It's mainly background on the industry and company.    As you say, the issues are the usual ones around leasing companies: leverage, cash flow from lease assets, cost of capital, etc.    A lot depends on the skill of the management and these guys have been at it for a while.  I still need to do some more reading on this one.

[aryadhana]

Anyone looked at this recently?  Got in when it was around $15/share largely on the basis of its discount to book (75%) then trading at 2.5x 2019 earnings and 7x run-rate earnings in Q1 (down about 85% since same period last year -- lower maintenance revenue and spare parts sales are where effects of the virus are most immediately apparent) after sort of casually deciding that demand for engines would persist, especially since they're more easily fungible for freight than whole aircraft, and the company was run well.

 

It recently traded up to $33 and now back around $25, and I can't really say I have a good idea what this should be worth.  The founder still runs the company and, with his son (who is also on the Board and a VP at the company), owns well over 50% of outstanding equity.  The alignment is great, but his compensation seems at first glance a little excessive $8-10M of compensation over the past few years, and as high as $4M sometime around 2012 -- mostly in performance equity grants, but seemed quite high for a company of its market cap at the end of last year, and certainly in 2012...  His total ownership has gone up from a little under 1/3 to a little over 1/2 (may well be approaching 2/3 including the son) over the past 5 years or so, and most of this isn't in the form of open purchases with own money.  On the other hand shares have performed well an done so with reason, so the compensation doesn't bother me to the extent governance isn't terrible (and I think it seems worse than it actually is).

 

It would be nice if stocks like this paid dividends, or at least discussed the point at which doing so would be appropriate.  I would also have liked to see more insider buying at these prices.