(1) The overnight air cargo segment (approximately 54% of revenue) consists of its Mountain Air Cargo Inc. (MAC) and CSA Air Inc. (CSA) subsidiaries, operates in the air express delivery services industry. The company's overnight air cargo services are provided primarily to one customer, FedEx Corporation (FedEx).
(2) The ground equipment sales segment consists of its Global Ground Support LLC (GGS) subsidiary, manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers.
(3) The ground support services segment consists of its Global Aviation Services LLC (GAS) subsidiary, provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers.
Is It Cheap?
- Trading at 0.76x P/NTA, a 19% discount to its five-year average P/NTA of 0.94
- Trading at 16.8x P/E, close to five-year historical high P/E of 17.3.
- EV/EBITDA at 6.5.
- Net Cash as a percentage of market capitalization = 27.7%
- ROE (trailing 12 months) was 4.6% and ROE (five-year average) was 13.4%
- Dividend yield 2.9%, with dividend payout ratio at 49%
- Book Value Growth (five years) 12.4%, Book Value Growth (10 years) 10.5%
Is It Safe?
- No debt, the highest gross debt to equity ratio for the past five years was 3.6%
- Inventory days and receivable days remain relatively healthy at 38 and 53 days respectively
- Customer concentration risk with Fedex
In fiscal year 2012, 54% of AIRT's consolidated operating revenues, and 100% of the operating revenues for its overnight air cargo segment, arose from services provided to FedEx. AIRT's agreements with FedEx are renewable on two-to-five-year terms and may be terminated by FedEx at any time upon 30 days’ notice. FedEx has been a customer of the company since 1980.
- Excessive management compensation
The top three executives' compensation accounted for 65% and 44% of fiscal year 2012 and fiscal year 2011 net profit, respectively.
Is It Quality?
Long track record of profitability and book value growth
- Management of AIRT has grown the book value per share at a five-year 12.4% CAGR and a 10-year 10.5% CAGR.
Dividend sustainability backed by huge cash balances with stated dividend policy
- AIRT has paid a dividend every year for the past five years with dividend payout has ranged from 26% to 56% over the past five years. AIRT has a dividend policy to pay a regularly scheduled annual cash dividend in the first quarter of each fiscal year.
Activists such as AO Partners/Nick Swenson have been accumulating the stock and even got a board seat on AIRT, prompting management to effect a poison pill though a stockholder rights plan.
Notwithstanding the activist catalyst, a cash-rich, dividend paying, historically profitable stock trading below book value like AIRT seems attractive.
This investment idea was generated through a quantitative screen. Readers can read my article, "The Martin Whitman Stock Screen - Nov. 6 2012."
Disclosure: Not vested