BBA Aviation: Competitively Strong Provider of Aviation Services for Private Jets

Markus Matuszek of M17 Capital Management presented his in-depth investment thesis on BBA Aviation (UK: BBA) at European Investing Summit 2018.

Thesis Summary:

BBA Aviation is one of the largest providers of business and general aviation services, focusing on private jets. BBA also provides engine and repair services and support for legacy aircraft systems, which require specialist knowhow and certification.

The company has become a top-three global player due to several acquisitions. BBA’s ground services enjoy a quasi-monopolistic position, allowing management to steadily increase pricing.

The US market, representing 80+% in global private jet traffic, is still recovering toward its pre-financial crisis peak, while benefiting from trends such as making private jet travel more accessible through cheaper planes, jet sharing programs, or even “uberization” effects.

BBA is growing organic revenue by 2-3% annually in real terms. Operating leverage of ~1.5x allows for over-proportional EPS growth and continued ROIC of 10+%. Further operational improvements will allow a reduction of net debt to ~$800 million.

The shares trade at a discount to their historic range of multiples, with recent trading multiples at 10x EV/EBITDA, 8.3x cash flow, and a dividend yield of 4.1% (all based on 2020 estimates). Using conservative valuation assumptions, BBA may be worth GBP 4.50 per share, providing ~50% upside from recent levels.

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About the instructor:

Markus Matuszek is an investor and entrepreneur. He is the founder and Chief Investment Officer of M17 Capital Management, a to be launched value equity long/short fund, biased towards European ideas (listed securities only). Prior to that he ran asset management and advisory firm Hermes Capital Management, advising entrepreneurs, HNWI and funds on strategic, financial and operational matters as well as investing some of their assets in liquid and illiquid strategies. He has been investing in listed securities, private companies and real estate over 13 years with a solid track record. A firm believer in value investing principles, Markus does apply them across the entire capital structure and asset classes. Earlier in his career, Markus was a as senior advisor / interim manager with extensive advisory and hands-on work in strategy, restructuring, organizational change, corporate finance and risk management, M&A advisory, private equity, real estate and investment management in Western Europe, Eastern Europe and the US. His education includes a M.A. in finance, accounting and controlling from the University of St. Gallen (Switzerland), a master degree from CEMS and dual MBAs from Columbia Business School and London Business School. Furthermore, he studied at the Warsaw School of Economics and University of Geneva and received several merit-based fellows and scholarships. He is also a CFA charterholder.