Cowen: An Acquisition 'Seems Likely' At Avolon, Stock Less Attractive

In a report published Wednesday, Cowen & Co analyst Helane Becker downgraded the rating on Avolon Holdings Ltd (NYSE: AVOL) from Outperform to Market Perform, while raising the price target from $31 to $32.

The downgrade reflected the probable acquisition of the company by Bohai Leasing Co Ltd (SHE: 000415) for $32 per share. "Avolon's acquisition price is 1.3x our 2016 book value estimate. This affirms our belief that aircraft lessors should trade at a multiple to book value," analyst Helane Becker wrote.

Becker added, however, that there was limited upside to the probable closing price of the acquisition nor is another bid likely, given Avolon's ownership structure.

In the report Cowen noted, "Bohai's 100% offer at $32/share is a 60% premium to the initial IPO price. We believe it is unlikely the board rejects the Bohai offer as there are five additional 787 leases tied to the deal as well as the ownership structure of Avolon."

At the end of 2Q15, Avolon had 152 aircraft, of which 143 were owned and nine were managed. Avolon's aircraft assets were valued at $6.36 bn on the balance sheet, up from $5.6 bn at the end of 2014. "Avolon has very few OEM orders in 2016 and none in 2017. The company will grow the fleet in the purchase leaseback market," Becker added.