Sell Gama Aviation

May 14, 2024

GMAA: £0.975

Market Cap: £61MM

Summary

I’m closing out of my Gama Aviation recommendation and recommend selling shares. Gama is an illiquid micro-cap so remember to use limits. The company is currently proceeding with a tender offer to buy back its own stock at 0.95 pence. There is a shareholder meeting to approve the tender offer on May 15. I expect shareholder approval given that management has already secured approval from 79.5% of its shareholders. I was originally just planning to participate in the tender offer, but the tender offer is not available to shareholders in the United States, United States, Australia, Canada, Japan, New Zealand and South Africa. As such, I’m just going to sell my shares. Gama Aviation is selling above the tender offer price. Why? The stock is dirt cheap (trading at negative EV if you don’t count its leases) and investors that are comfortable holding an illiquid UK stock are adding to their position. Over the past week, the stock has traded between 0.95 and 0.98. My plan is to sell in this range.

Original Gama Write-Up

Additional Details

Gama Aviation will hold a shareholder meeting on May 15, 2024 to vote on the following items:

  1. “By way of an ordinary resolution, the proposed return of up to £32.6 million to Shareholders by way of a tender offer at 95 pence per Ordinary Share capable of acceptance by all Eligible Shareholders in full”
  2. “by way of a special resolution, the cancellation of admission of Ordinary Shares to trading on AIM”

I would love to continue to hold shares in Gama Aviation as the valuation is dirt cheap, but I’m hesitant to hold shares in the company that is going to be delisted from the AIM exchange.

Will both measures pass?

Yes, they both will pass. The company wrote in its circular:

“Shareholders representing in aggregate 79.6 per cent. of the current issued share capital have given Irrevocable Undertakings to exercise the voting rights attaching to such Ordinary Shares in favour of the Resolutions “

Why isn’t the tender offer valid for shareholders in the United States, United States, Australia, Canada, Japan, New Zealand and South Africa?

I spoke to Fidelity and they didn’t have any insight.

The circular says that delivering the Circular to the United States would violate the law:

An Opportunity for UK based investors?

If I were a UK or European based investor, I would take advantage of any weakness in Gama Aviation as there will be no proration in the tender offer. Management has shared that certain shareholders will retain their stake in GMAA and as such, the company will have enough capital to buyout all minority shareholders.

As such, if GMAA trades below 0.95, there is an arbitrage opportunity to buy the stock and then immediately sell it back to the company at 0.95, capturing the spread.

Recent filings show that Richard Griffiths is increasing his stake in Gama Aviation. I don’t know much about Mr. Griffiths but he must recognize that Gama Aviation is worth far more than its current share price and that the buyback at 0.95 will be incredibly value accretive.

His most recent purchase (on May 14) was at 0.96.

What is the current valuation of Gama Aviation?

Gama announced that it had $92MM of cash (£72MM) as December 31, 2024.

Gama is currently trading at £0.975 or a market cap of £61MM or $77MM.

In addition to its cash, Gama also owns a European business aviation business that generated £53MM of revenue last year and a profitable Special Mission business that generated £27MM of revenue last year.

So management and the remaining shareholders are effectively stealing the company. It’s basically a take under.

I would love to continue to own the stock, but I’m not interested in owning a delisted UK stock.

When will the delisting happen?

Gama’s circular says “The last day of dealings in the Ordinary Shares on AIM is expected to be 30 May 2024.”

Concluding Thoughts

I originally recommended GMAA Aviation in November at a price of 0.84 GBP.

Assuming we get out at 0.95 GBP, we will have made 13% in 6.5 months. Pretty nice return on investment and an attractive IRR but it’s disappointing we couldn’t realize more upside given the stock’s low valuation.

Disclosure/Disclaimer:

Rich Howe owns shares of GMAA but plans to sell them. All expressions of opinion are subject to change without notice. All published emails/articles/correspondence is provided for informational purposes. We do not warrant the completeness or accuracy of this content. Please do your own due diligence and consult with an investment adviser before buying or selling any stock mentioned on www.stockspinoffinvesting.com.