Horos Asset Management, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 21.5% was delivered by the Horos Value Internacional Fund for the Q1 of 2021, outperforming the Index, which appreciated 8.9% for the same period. The Horos Value Iberia returned 13.0%, beating the 5.4% rise of its benchmark You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Horos Asset Management, in its Q1 2021 investor letter, mentioned AerCap Holdings N.V. (NYSE: AER), and shared their insights on the company. AerCap Holdings N.V. is a Dublin, Ireland-based aircraft leasing company that currently has a $7.4 billion market capitalization. Since the beginning of the year, AER delivered a 25.55% return, extending its 12-month gains to 95.84%. As of May 14, 2021, the stock closed at $57.66 per share.
Here is what Horos Asset Management has to say about AerCap Holdings N.V. in its Q1 2021 investor letter:
“AerCap, the leading aircraft leasing company, announced this quarter the acquisition of GECAS, the other major player in the sector, in exchange for 111.5 million shares, $24 billion in cash and another $1 billion in AerCap bonds or cash. At the price at which AerCap was trading at the time, the company was acquiring the GECAS fleet at c. 10% discount. This move is definitely reminiscent of others of similar size made by the company. In particular, this acquisition has important similarities with that of ILFC in 2013. Firstly, both belonged to a forced seller: the insurer AIG in the case of ILFC and General Electric in the case of GECAS. Secondly, like GECAS, ILFC was one of the big players in the sector. Also, the acquisition of ILFC was made at a discount on its fleet (15%) and gave AerCap access to an attractive order book for new aircraft—just like the current deal does now. Finally, AerCap sold those ILFC aircraft that did not fit its long-term strategy, and then repurchased shares at a deep discount to the company’s NAV, creating tremendous value for its shareholders. Will it make a similar move after the GECAS acquisition?
As for the differences, we think that GECAS has a “cleaner” fleet, as it has been making fleet adjustments for years. It also brings new divisions to AerCap, such as the engine leasing business (quite attractive) or the helicopter leasing business (potential future divestment). Additionally, it is noteworthy that, on this occasion, AerCap will have a less leveraged balance sheet after the transaction (most likely something needed to finance such a large acquisition).
All in all, this is a move that, being conservative, will help create about 9% of shareholder value (in terms of NAV per share) and, given AerCap’s strong balance sheet and its ability to generate profits, plus the potential sale of unattractive aircraft for the company, it is expected that at some point AerCap will resume its (aggressive) share buyback program if the company continues to trade at a discount to its underlying value. Following the strong performance of the stock, we slightly trimmed our position.”
Our calculations show that AerCap Holdings N.V. (NYSE: AER) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, AerCap Holdings N.V. was in 40 hedge fund portfolios, compared to 38 funds in the third quarter. AER delivered a 31.43% return in the past 3 months.
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Disclosure: None. This article is originally published at Insider Monkey.
