ATSG - Air Transport Services

[Smazz]

Ive just come around to it in the last little while.

 

What I like about certain companies is what Warren used to be quoted on (not so much any more) as predictable earnings. I like that they have this new agreement in place .

 

Im still in the first review stage so any heads up you guys can give going forward would appreciate.

 

Yes, i did search and read the latest ATSG thread.

 

Thanks

 

Smazz

[Myth465]

I own some March 2011 options and will likely rotate back into shares soon enough. The options are down but I avoided a big drop and raised cash.

 

With that said the conference call has a back and forth conversation with an analyst which lays out the case beautifully. ATSG also now has a pretty good presentation on their website. We get a very high cash flow yield, built in growth, owner managers who appear to know how to allocate capital, and very stable earnings / cash flow. If they can continue to grow the business, then this could be a 10 bagger. For those who bought in at 10 - 45 cents it already is.

 

 

[rmitz]

I own some March 2011 options and will likely rotate back into shares soon enough. The options are down but I avoided a big drop and raised cash.

 

With that said the conference call has a back and forth conversation with an analyst which lays out the case beautifully. ATSG also now has a pretty good presentation on their website. We get a very high cash flow yield, built in growth, owner managers who appear to know how to allocate capital, and very stable earnings / cash flow. If they can continue to grow the business, then this could be a 10 bagger. For those who bought in at 10 - 45 cents it already is.

 

Yeah, I'm still in too.  I'm not quite as optimistic as Myth but I think there's still significant headroom before fair value.  I did slightly trim my position at the 5.50 range, but in retrospect, I would have liked to do more of that. :)

 

It's an interesting company, in that it's an airline company that pushes off many of the risks of flying planes to most of their partners who actually want the services.  I originally purchased after calculating that the remaining assets after bankruptcy would be worth well over the pennies paid per share.  Let's just say the situation worked out significantly better than that.

 

[Smazz]

Thanks guys

 

ATSG also now has a pretty good presentation on their website.

Myth did you mean the webcast of the last cc? Because i couldnt find any other presentation on their website.......however I do suck at the internet :-\

[Myth465]

I own some March 2011 options and will likely rotate back into shares soon enough. The options are down but I avoided a big drop and raised cash.

 

With that said the conference call has a back and forth conversation with an analyst which lays out the case beautifully. ATSG also now has a pretty good presentation on their website. We get a very high cash flow yield, built in growth, owner managers who appear to know how to allocate capital, and very stable earnings / cash flow. If they can continue to grow the business, then this could be a 10 bagger. For those who bought in at 10 - 45 cents it already is.

 

Yeah, I'm still in too.  I'm not quite as optimistic as Myth but I think there's still significant headroom before fair value.  I did slightly trim my position at the 5.50 range, but in retrospect, I would have liked to do more of that. :)

 

It's an interesting company, in that it's an airline company that pushes off many of the risks of flying planes to most of their partners who actually want the services.  I originally purchased after calculating that the remaining assets after bankruptcy would be worth well over the pennies paid per share.  Let's just say the situation worked out significantly better than that.

 

 

Lucky man, looks like you have already hit 10x. I am at about 3x, most of it being short term.

 

-----

 

Here is the presentation. Its sort of barried on the website. The conference call transcript will have the back and forth.

 

http://www.sec.gov/Archives/edgar/data/894081/000119312510183700/dex991.htm

[Smazz]

http://www.sec.gov/Archives/edgar/data/894081/000119312510183700/dex991.htm

 

Thanks,

cause I didnt see that anywhere in the company website

[txlaw]

Yup, still own it, and it's still my largest position, although I have sold a bit to put into different companies. 

 

I was actually trading with my position a bit.  I'd sell it between $5.20 and $5.4 and buy at $4.80 or lower.  It's so volatile.

 

[Smazz]

How has the liquidity been for you?

 

Have you been able to get your orders filled?

[txlaw]

The liquidity has been fine for me.  But I'm a small fry in terms of the capital I have to invest.

[Myth465]

Looks like Management is getting the story out. We have been moving quite a bit over the last few weeks.

[Smazz]

you guys who are buying on dips and selling on increases are doin ok though.

 

 

[Myth465]

Its been a good couple of weeks.

[Matson125]

Yes it has!

 

Cheers

 

Michael

[brker_guy]

I believe they presented at some Oppenheimer Industrial Conference today?

 

I noticed that they re-lay out their webpage to make it more user friendly and showcased their August Shareholders Presentation:

 

http://www.atsginc.com/ir/8k2010-08-10.pdf

 

Things are looking up for ATSG, figuratively speaking.  ;D

[rmitz]

Its been a good couple of weeks.

 

I'm starting to get a little antsy with my holdings.  I'm not sure I can hold past $9 at this point without better ideas about future earnings.  I am admittedly not doing a very complex projection, but if we hit that before the next earnings release I will be both happy and faced with a decision.  I don't hold on hope or guesswork projections, unless they're sufficiently conservative.

[Myth465]

Take Q2, and use it as a run rate, or be even lazier and reference the analyst on the call. Very stable earnings base and high cash flow and pick a multiple. I am fine with 10x - 12x for cash flow vs EV, or 8x for CF vs MC. I would even do 10x for CF vs MC due to the fact that this is more like a flying REIT and the assets are long lived.

 

--My valuation is listed below.

 

ATSG should probably be valued at 8 - 10 x FCF - Debt, due to the fact that revenues and earnings are both largely locked. ATSG also has significant built in growth, and its industry is also growing. If we took the estimated 2011 FCF of $150 million (noted on the last call, the analyst really knows his stuff and has been following the company for about 2 years it seems), placed an 8x multiple (not 10 due to debt and eventual required tax payments), and subtracted out debt ATSG would have a value of $913 million vs. a current market cap of $327 million (this was in August).

 

---

 

I find I have to get less conservative each time it goes up. I am pretty comfortable with a $10 or even $15 valuation but could hold for much longer due to the growth and strength of the business model. Management is owned a nice bonus and really has put together something amazing. Buy planes, lease them, play golf, pay no taxes. Eventually the market cap will hit $1 billion and the debt will look quite reasonable.

 

My issue is ATSG became my portfolio and I had to sell a bit. I wanted the same exposure though so I switched to options. I probably left some money on the table but am pretty happy with my switch. What I have bought has gone up, and I can buy back my position at $5 in March. Some times its not too bad to book gains. Many long term shareholders are reducing for probably the same reason. Time to diversify and find other 5x to 10x baggers.

 

I think 10x FCF vs EV which pulls in the debt is a fair valuation. I think 10% after tax at some point is a fair return. You can model growth and hold a core position as long as its under that. Thats my plan. It will be a 10% - 15% position as long as they keep buying plans and earning me at least a 15% return. It will also continue to be volatile so you can buy below IV when it sells off. I am guessing $6 is the new bottom.

 

----

 

Im not one to model growth or even use excel. Luckily with this you dont have to. The past will be the future +. You can hold based on the past.

[Myth465]

Another good day, everyone still holding on?

 

I sold my December options last week  :(, but still have a sizable chuck of March 2011 options. It represents about 86% of my original holdings.

[rogermunibond]

Still holding everything I have.

 

ATSG seems to be in a great position to benefit from 2 trends:  1) tech companies holding less inventory and being more time-sensitive in keeping their supply chains running and 2) tremendous inter and intra Asian package traffic and inter/intra Latin American traffic.

[rmitz]

Still holding everything I have.

 

ATSG seems to be in a great position to benefit from 2 trends:  1) tech companies holding less inventory and being more time-sensitive in keeping their supply chains running and 2) tremendous inter and intra Asian package traffic and inter/intra Latin American traffic.

 

Likewise.  I'm anxiously looking forward to the data coming this week.  The price movement itself is pretty surprising to me, but hey, I'm not going to complain.  I was tempted to reduce somewhat today, but didn't yet.  I guess we'll see.

[brker_guy]

UPS just raised its shipping rate:

 

http://finance.yahoo.com/news/UPS-says-2011-rates-will-rise-apf-32091266.html?x=0&sec=topStories&pos=6&asset=&ccode=

 

This might have a ripple effect onto ATSG.

[Myth465]

http://www.businesswire.com/news/home/20101103007286/en/Aircraft-Leasing-Drives-Improved-ATSG-Results

 

I kinda wish I held my shares  ;D. The options make me feel ok about it though.

 

These guys are really making big moves. Cash flow is as expected with estimated CFO of $100 million for the year. I wise Management would go play golf but these guys are intent on making money for us. I like to view ATSG as a leasing company with a few other services thrown in, that may be the wrong way to look at the company. They appear to be seeing strong growth form the ACMI side of the business.

 

Depending on the growth my $10 - $15 valuation may be low. I cant wait to hear the conference call, and love the early release.

 

---

 

Outlook

 

New and Renewal Agreements for ATSG Services

 

In a separate news release, ATSG reported today the start of new air cargo services, and renewal agreements for existing services, spanning three continents and with new and existing customers. Summarizing that announcement:

 

   * On November 1, ABX Air began operating one Boeing 767-200 freighter for Japan Airlines in ACMI service in support of DHL in Asia.

   * Also on November 1, ATI added one DC-8 freighter and CCIA added one 727 freighter to BAX Global’s North American network.

   * Next week, ABX Air will begin daily transatlantic ACMI service for DHL between England and Cincinnati, Ohio, via a 767-300 that ABX Air has leased from a third party.

 

   * In October, DHL selected ABX Air to operate the first of what is anticipated to be four of DHL’s own Boeing 767 freighters in its U.S. network, under terms of the CMI agreement. The four are in addition to 13 Boeing 767s that CAM will lease and ABX Air operates in the U.S. for DHL.

 

   * Amerijet today exercised the first of three options for a 767-200 for a seven-year dry lease, to be effective in January 2011. Amerijet currently leases two 767-200 aircraft from CAM.

 

   * ATI received a commitment from the U.S. military’s Air Mobility Command to extend its role as exclusive provider of flexible DC-8 combi aircraft to the AMC through September 2011.

 

   * The company completed two-year renewal contracts for the management of three U.S. Postal Service regional sort centers, and for management of an expanded holiday-season sort center in 2010.

 

“The demand for our cargo aircraft, and especially for our services and support as 767 freighter operators, is even greater than we forecast when we committed to convert 14 of our 767-200s to standard freighters, and when we committed to purchase more advanced 767-300s earlier this year,” Hete said. “We are already working toward firm commitments for our 767-300s, the first of which is expected to enter service toward the end of the first quarter 2011.”

 

 

 

 

[brker_guy]

Very good quarter for ATSG.  Anyone listened to the CC this morning and have any comments?

[Myth465]

Here is my more detailed review after listening to the call and reading the Q.

 

12.05.2010 - Q3 2010 Key Metrics and Updates are listed below.

 

Key Metrics

In Millions

Period

Q3

Quarterly EBITDA

 $44 Million   

Market Cap & Share Price

 $507 Million, $7.95 PS

Current Cash Levels

 $37 Million

YTD CF

 $81.7 Million

Current Total Debt

 $429.1 Million

$28 M DHL Note

Will Amortize

YTD EBITDA

 $122.8 Million

 

FCF Allocation and Capex Management - The business model is starting to take shape and I am impressed. ATSG has purchased 3 additional 767-300 aircraft and is in the process of modifying 7 aircraft. The new purchases will add FCF and will also provide 3 years of depreciation shield from taxes. I think ATSG will purchase 3-5 aircraft each year to avoid paying taxes via the accelerated depreciation. It appears that all FCF will be allocated toward purchasing and converting new planes. The additional planes should deliver a minimum of 11.7% ROIC. They are projected to cost about $200 million and deliver $23.4 million. This doesn’t take into account leverage or ACMI.

 

Given these high returns I like the strategy. LT Debt and pension obligations have come down quite a bit compared to last year and the debt begins to look very manageable when you start to look at an equity valuation of $500 million to $1 billion ($8 - $16 per share).

 

General Thoughts on Company, Market, and Business - ATSG has built in growth. CAM will be putting 5 additional Boeing 767-200 and 3 Boeing 767-300 planes into service during 2011. The ACMI and Other Segments have also been adding bits of growth. I like to take CAM revenues and cash flow and project those, and consider the other income as extra. Per the Analyst from the last call, ATSG will generate about $150 million in cash flows, and most of this will go towards new planes which will increase cash flow, or debt repayment which will reduce interest costs. 2012 will likely be even stronger because we will have all planes in service from day 1.

 

This number also didn’t take into account the growth and new business that was announced post quarter end. We have new ACMI business for DHL and other companies using dry leased planes from third parties, sort agreements, and repair business. All of this should fall to the bottom line.

 

Thoughts on Investment and Stock Performance thus Far - Updated Valuation, I have decided to use a 10x multiple for ATSG. The revenues are fairly dependable with the new contracts in place, and the company features built in growth. Many would say that the company probably deserves a 12x multiple considering all of the growth prospects, but I want to continue being conservative. If we take projected 2011 FCF of $150 million (which doesn’t include new business), and multiple it by 10x we get $1.5 Billion. ATSG has something around $500 million in LT debt. That leaves us an equity valuation of $1 billion vs. a current valuation of $500 million. ATSG is trading at $8 and could be worth around $16.

 

The stock has performed quite well. I have sold all shares around $5, and sold some options around $7 or so. I regret most of those sells, but still have options which represent about 80% of my total position. The plan currently is to exercise these options in March and to hold. I may not be able to execute the plan, though due to capital constraints.

 

[Myth465]

Another nice day  :). Now what to do about my March options, I cant hold em all and was trying to push them out today but the runup has made that tough. I still call $16 within 2 years.

 

 

[rogermunibond]

BBT and Suntrust both came out with buys today.

 

Still holding all shares; haven't lightened up.