Derek Pain: Patience is a virtue, whether prices are flying or falling

No Pain, No Gain

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The Independent Online

My decision to hang on to Avation shares seems to be paying dividends. The aircraft leasing group has at last produced the trading performance that justifies its place in the no pain, no gain portfolio and the investment is once again showing a profit.

I descended on the shares at 83.5p in January 2011. They subsequently topped 120p but some rather disappointing profits and then an unexpected cash call sent the price to around 65p. Should I keep the shares or subject them to the old heave-ho? I must admit I came near to dropping them but, perhaps more by luck than judgement, I retained the stock. The price is, as I write, 90.5p and I expect it to go higher.

As I have remarked many times, patience is a virtue in the investment game. A few weeks ago I mentioned that sticking with Mears, the support services group, when the shares looked friendless, had paid off.

Avation, dubbed in some quarters as a rent to fly operation, has an international profile. The shares have a full London listing, yet the yearly shareholders' meeting is held in Singapore; the group has strong links with Australia and is now reporting in US dollars. The switch from pounds to dollars – another development that caused me some dismay – occurred in May only because the "primary functional currency" is dollars for lease revenues and debt obligations.

The Australian connection is extensive. Many of its 23 aircraft are leased to a "down under" airline, and Avation was once part of SkyWest, an airline now merged with Virgin Australia. Avation arrived on what is now the fringe ISDX share platform at a mere 4p a share. I believe it is the only company ever to achieve a direct move from ISDX (or Plus as it was then) to a full stock market listing.

The currency switch could confuse some shareholders but the resultant pre-tax figure of $14m (around £9.3m) is by far the group's best ever display and is well ahead of stock market forecasts and represents a substantial advance from what was admittedly low flying profits, published at £5.2m, last time round.

Stockbrokers Liberum and WH Ireland are among those impressed. The former believes the shares are cheap and Ireland has upgraded its forecasts although its target price remains at 125p.

Even so, Ireland analyst Raymond Greaves says the outlook is "very positive" and expects the next set of profits to hit $18.1m with $22.3m likely in the following year. He also expects dividends, increased to 1.78 cents a share, to be improved to 2.5c for 2014, and reach 3.1c in 2015.

Avation did seem subject to quite considerable share selling pressure. But I note that chairman Jeff Chatfield, an experienced company airman, has been a keen buyer and lifted his interest to 20.19 per cent. And the Oceanwood Capital fund has just over 18 per cent.

Another portfolio member has rolled out details of impressive trading. The Spirit Pub Co, taking in such chains as Chef & Brewer and Fayre & Square, confirmed a sunshine-inspired fourth quarter performance. The group's managed pubs lifted sales by 4.1 per cent and the leased estate showed a marked improvement with turnover up 2.2 per cent and income down 0.4 per cent compared with a 2.1 per cent income drop last time. The group seems set to meet stock market profit expectations of around £55m when it reports on its year's trading next month.

Stockbroker Panmure Gordon has a 110p target price on the shares. Last month I reported that Numis Securities is looking for a more modest 85p. The price is now around 75p. The portfolio recruited the shares at 42p two years ago, shortly after the group split from the still struggling Punch Taverns.

I did once toy with the idea of including Punch in the portfolio. Although heavily indebted there are strong hopes it will be able to do a deal with the spread of organisations that now own its debt. Talks have been dragging on but the fact they are still ongoing could be a bullish sign.

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