Let me try 2, not pushback, but alternative ideas.
On AER, why not AL? newer fleet, smaller size but large enough to hold on its own. Slightly less shareholder-friendly capital allocation, but comped by much lower P/TBV.
On CZR, why not MGM? comparable valuation, equal or higher quality assets, especially regional, stronger digital assets, a much better run biz historically.
There's a big discount in P/B, but on a fwd P/E level for 2025 & 26, AER is only slightly more expensive. AER has been generating, and is projected to generate a higher ROE and thus worthy of a higher P/B. In the end we only care about earnings.
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AER’s book value understates the “true” value. They have grown through M&A at a discount to book value (and thus acquired assets get recorded on AER’s balance sheet to cheaply). AL is mostly clean BV, mostly purchases from OEMs.
The “gain on sale” levels AerCap has been hitting somewhat proof that the book value is indeed understated.
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If I understand it correctly, the business model of AL is more “constrained” than AER:
"Buy New Assets Direct from OEMs - Hold Assets for First Third of Useful Life - Sell Assets
and Re-Invest Capital"
AER on the other hand flexible regarding capital allocation, can decide between direct OEM orders, sale leasebacks, share buybacks… whatever seems most appealing for per share value at the time.
---
AER has addressed average fleet age comments:
“Our planes sold average age is 15y. Average age of portfolio doesn't matter.
The key is to look at the average age of the components of business.
If you have a young fleet of 777s or 737s, you will lose money because you won't -- those planes will not be flying in 2035, 2038. And if you bought them in 2015, that's what you need to happen.”
AER has young new technology planes and older (12y+) current technology planes. The CEO is basically saying: you don’t want a young “current technology ” plane.
AL has young current technology planes.
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I assume an investment in AL counts in an increasing ROE and thus the company being "worthy" of a higher P/B. Is there a path? Has management addressed this?
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This is simply a situation where I'm leaning towards the company that's currently already doing the right thing instead of buying the one that could potentially start doing the right thing. But I'm happy to hear arguments in favor of Air Lease.
I will preface by saying I'm just one guy, and I haven't always compared an investment with all the comps / don't follow all the comps. Sometimes I just see a company or investment pitch I like, I do a little more research on that one company and that's it ...
For CZR vs MGM: I was just drawn to the CZR pitch of "there's elevated capex right now, more FCF will come in soon and when debt target is reached, they start buybacks". A story of improving fundamentals and a change in capital allocation (start of buybacks).
I really like investments where something is changing: when it goes right, it can go really right (e.g. improving fundamentals + multiple expansion because of it)
To be honest, when I bought CZR, I hadn't spend much time on MGM. Only afterwards I saw that they were already doing all the buybacks I hoped CZR would start doing. That said, I still stuck to the investment of improving fundamentals (CZR)
I will have more to say on AL vs AER, but that's for tomorrow
I know changing your mind can be painful. Would you initiate a new position? This frame makes it easier sometimes.
I did look at both and liked VID better. I did however not feel comfortable with predicting the cycle in the industry and did not buy VID. The reason I liked VID better was it's low leverage which will allow it to overcome the downswing in the cycle easier.
One of my usual "problems" is that I think my portfolio turnover is too high. That's also part of the reason why I'm letting this Verallia position linger.
If I didn't own Verallia, I likely wouldn't buy it right now. So yes, it should sell it.
I don't have a set number in mind for portfolio turnover, but for the model portfolio in 2024 it was over 100%. I think I should get it at least below that. I will try making less of the small trims & adds that I often do.
Also depends on your tax situation & investment style of course.
I currently don't have to pay capital gains tax (CGT), but that will change over the course of the year. With no tax, you can cycle more often from idea to idea if "the easy gains have been made". With tax, it'll make sense to hold on a bit longer :)
That indeed sounds quite high to me. If investing is not your job I would focus more on the quality of your decisions. Depends on your strategy naturally.
I'm not entirely sure what you mean with your question, could you elaborate?
My list at the end of the post is not exhaustive, it's just what came to me at the time of writing.
I pay attention to insider ownership & mgmt incentives, but I guess I want to see it in combination with something else I care about. It strenghtens my conviction, but won't be the sole reason for an investment.
That said, a lot of my portfolio companies have good insider ownership.
Thanks for a interesting write up! Too many yearly overviews in my inbox but I really enjoyed this one :)
Great results for the year as well!
I did some research on Veralia. So here are some points that might help you: How does it fit in your framework? How does it compare to Vidrala? Are you comfortable with their leverage. How comfortable are you predicting the cycle in this industry? Best of luck and hopefully a great returns in 2025!
Hey Wubbe, thanks for commenting, glad you enjoyed it.
Good questions. I haven't gone to deep into Vidrala, but I know many on here (and X) like it better because it's family owned & has lower leverage.
- VRLA does not fit any of the recurring themes. I guess that's one of the reasons why I'm unsure about the stock.
- I initially bought it for "portfolio reasons": was looking for something stable at a good price. I didn't expect the swings VRLA is currently experiencing. VID seems more stable throughout all of this.
- Differences between VID & VRLA: if I understand it correctly, VRLA was more hedged regarding energy costs and reaped the rewards in 2022 & 2023, but is lagging now. VRLA's end markets are more tied to wine & spirits, which are getting hit harder than VID end markets.
- TBH, I don't mind the leverage and think VID is underlevered. VRLA just raised €600m < 4% for 8y.
But yeah, your comments made me think. I think that deep down I know the answer is I have to sell Verallia, but some behavioral flaws are working against me ("it's a public position, am I really gonna sell when it's so cheap facing temporary headwinds?").
Seems like you looked at both Verallia & Vidrala and went with the latter?
excellent writeup.
Let me try 2, not pushback, but alternative ideas.
On AER, why not AL? newer fleet, smaller size but large enough to hold on its own. Slightly less shareholder-friendly capital allocation, but comped by much lower P/TBV.
On CZR, why not MGM? comparable valuation, equal or higher quality assets, especially regional, stronger digital assets, a much better run biz historically.
Cheers,
There's a big discount in P/B, but on a fwd P/E level for 2025 & 26, AER is only slightly more expensive. AER has been generating, and is projected to generate a higher ROE and thus worthy of a higher P/B. In the end we only care about earnings.
---
AER’s book value understates the “true” value. They have grown through M&A at a discount to book value (and thus acquired assets get recorded on AER’s balance sheet to cheaply). AL is mostly clean BV, mostly purchases from OEMs.
The “gain on sale” levels AerCap has been hitting somewhat proof that the book value is indeed understated.
---
If I understand it correctly, the business model of AL is more “constrained” than AER:
"Buy New Assets Direct from OEMs - Hold Assets for First Third of Useful Life - Sell Assets
and Re-Invest Capital"
AER on the other hand flexible regarding capital allocation, can decide between direct OEM orders, sale leasebacks, share buybacks… whatever seems most appealing for per share value at the time.
---
AER has addressed average fleet age comments:
“Our planes sold average age is 15y. Average age of portfolio doesn't matter.
The key is to look at the average age of the components of business.
If you have a young fleet of 777s or 737s, you will lose money because you won't -- those planes will not be flying in 2035, 2038. And if you bought them in 2015, that's what you need to happen.”
AER has young new technology planes and older (12y+) current technology planes. The CEO is basically saying: you don’t want a young “current technology ” plane.
AL has young current technology planes.
---
I assume an investment in AL counts in an increasing ROE and thus the company being "worthy" of a higher P/B. Is there a path? Has management addressed this?
---
This is simply a situation where I'm leaning towards the company that's currently already doing the right thing instead of buying the one that could potentially start doing the right thing. But I'm happy to hear arguments in favor of Air Lease.
Thanks for the compliment and questions.
I will preface by saying I'm just one guy, and I haven't always compared an investment with all the comps / don't follow all the comps. Sometimes I just see a company or investment pitch I like, I do a little more research on that one company and that's it ...
For CZR vs MGM: I was just drawn to the CZR pitch of "there's elevated capex right now, more FCF will come in soon and when debt target is reached, they start buybacks". A story of improving fundamentals and a change in capital allocation (start of buybacks).
I really like investments where something is changing: when it goes right, it can go really right (e.g. improving fundamentals + multiple expansion because of it)
To be honest, when I bought CZR, I hadn't spend much time on MGM. Only afterwards I saw that they were already doing all the buybacks I hoped CZR would start doing. That said, I still stuck to the investment of improving fundamentals (CZR)
I will have more to say on AL vs AER, but that's for tomorrow
fair points. I'm also talking about my book here. :-)
I know changing your mind can be painful. Would you initiate a new position? This frame makes it easier sometimes.
I did look at both and liked VID better. I did however not feel comfortable with predicting the cycle in the industry and did not buy VID. The reason I liked VID better was it's low leverage which will allow it to overcome the downswing in the cycle easier.
One of my usual "problems" is that I think my portfolio turnover is too high. That's also part of the reason why I'm letting this Verallia position linger.
If I didn't own Verallia, I likely wouldn't buy it right now. So yes, it should sell it.
I have that feeling as well 😌
That being said I usually regret not acting more than acting.
What is a good level of portfolio turnover? How do you think about that? I now give companies with upward momentum more leeway
I don't have a set number in mind for portfolio turnover, but for the model portfolio in 2024 it was over 100%. I think I should get it at least below that. I will try making less of the small trims & adds that I often do.
Also depends on your tax situation & investment style of course.
I currently don't have to pay capital gains tax (CGT), but that will change over the course of the year. With no tax, you can cycle more often from idea to idea if "the easy gains have been made". With tax, it'll make sense to hold on a bit longer :)
That indeed sounds quite high to me. If investing is not your job I would focus more on the quality of your decisions. Depends on your strategy naturally.
enjoyed the update.
i noticed 'other shareholders' are not on your list of criteria.
is this because you want your conviction to be 100% organic, even if you respect the process of other major shareholders\insiders ?
Glad you enjoyed it.
I'm not entirely sure what you mean with your question, could you elaborate?
My list at the end of the post is not exhaustive, it's just what came to me at the time of writing.
I pay attention to insider ownership & mgmt incentives, but I guess I want to see it in combination with something else I care about. It strenghtens my conviction, but won't be the sole reason for an investment.
That said, a lot of my portfolio companies have good insider ownership.
ok, sounds like insider\major holder moves do not effect your actual buy\sell decisions.
i assumed even listed criteria do not either, on a individual basis.
Thanks for a interesting write up! Too many yearly overviews in my inbox but I really enjoyed this one :)
Great results for the year as well!
I did some research on Veralia. So here are some points that might help you: How does it fit in your framework? How does it compare to Vidrala? Are you comfortable with their leverage. How comfortable are you predicting the cycle in this industry? Best of luck and hopefully a great returns in 2025!
Hey Wubbe, thanks for commenting, glad you enjoyed it.
Good questions. I haven't gone to deep into Vidrala, but I know many on here (and X) like it better because it's family owned & has lower leverage.
- VRLA does not fit any of the recurring themes. I guess that's one of the reasons why I'm unsure about the stock.
- I initially bought it for "portfolio reasons": was looking for something stable at a good price. I didn't expect the swings VRLA is currently experiencing. VID seems more stable throughout all of this.
- Differences between VID & VRLA: if I understand it correctly, VRLA was more hedged regarding energy costs and reaped the rewards in 2022 & 2023, but is lagging now. VRLA's end markets are more tied to wine & spirits, which are getting hit harder than VID end markets.
- TBH, I don't mind the leverage and think VID is underlevered. VRLA just raised €600m < 4% for 8y.
But yeah, your comments made me think. I think that deep down I know the answer is I have to sell Verallia, but some behavioral flaws are working against me ("it's a public position, am I really gonna sell when it's so cheap facing temporary headwinds?").
Seems like you looked at both Verallia & Vidrala and went with the latter?
Barry Callebaut... looks very tasty at 1131.
Agreed. I was looking for news today, but didn't find anything
maybe its just the chocolate price again going up