Port Notes: ACY@14.72, Buy

Here’s a good one.

AeroCentury is a leasing company that purchases aircrafts and aircraft engines and leases them to international regional airlines. It’s $125 million portfolio includes Fokker/de Havilland/Saab aircrafts, and some GE engines.

I used Net Income + Depreciation as a proxy for operating cash flow, and it leads to 8-10% return on leasing assets. After levering up with $72 million debt, the rate of return is around 30%.

The company has zero employees—it’s a first—since it outsourced the management to JMC.

It trades at about half book value and it’s profitable.

There’s some complexity in financing schemes.

Before buying, you need to figure out what would happen if there is an interest rate hike.