Business Wind Down May Lead To Cash Payout
An Aviation Company Worth One Last Puff
With a market cap sitting at just under $7.2 million, $9.2 million in net assets (all of which are current assets), no debt, and DCF values that put the stock at double its current share price, Saker Aviation Services, Inc. (OTCQB: SKAS) looks like a winning pick. There was one problem I had ran into while looking at the company however… The heliport that SKAS has exclusive rights to operate had those rights awarded to another company starting June 12th, 2025. SKAS filed an 8-K regarding this development on November 22nd of 2024.
On November 20, 2024, Saker Aviation Services, Inc. (the “Company”) was notified by the New York City Economic Development Corporation (“NYCEDC”) that NYCEDC intends to award the concession agreement (the “Concession Agreement”) for the operation of the Downtown Manhattan Heliport located at Pier 6 in Manhattan (the “Heliport”) to another company.
Under the Company’s current agreement (the “Interim Agreement”) with the NYCEDC, the Company has the exclusive right to operate as the fixed base operator for the Heliport until June 12, 2025. However, the Interim Agreement may be terminated by the NYCEDC at any time. If NYCEDC decides to terminate the Interim Agreement early or finalizes their decision to award the Concession Agreement to another company, the Company’s operations will cease, and the Company will not have a revenue generating business.
- SKAS 8-K From November 22, 2024
While this development makes any discounted cash flow analysis absolutely useless, SKAS’s net asset value still intrigued me. Their entire balance sheet is made up exclusively of current assets and current liabilities. Furthermore, all of SKAS’s assets are extremely liquid except perhaps for the company’s inventories. SKAS has zero debt on its balance sheet and 32.4% of its liabilities are customer deposits. These deposits will either be passed down onto SKAS’s cash and cash equivalents column of their balance sheet as the company fulfills its heliport services, or get passed on to the next business who won the Interim agreement to operate the heliport, as they would be the ones to provide these customers with services after June 12th, 2025.
SKAS’s market cap is only $7.2 million yet their net asset value as written on their balance sheet comes out to $9.1 million or $9.22 worth of value per share. When excluding customer deposits from SKAS’s liabilities, we get a net asset value of $9.4 million, which ends up coming out to a value of $9.49 per share. These net asset values come out to a 27% and 31% upside as compared to SKAS’s current share price of $7.25.
This past November after the news dropped that SKAS lost this concession agreement with the NYCEDC the company’s stock took a pretty nasty tumble.
This news was disclosed via an 8-K. SKAS’s next financial report will be their annual report which they usually file in March or April. When SKAS finally does file their 10-K, I suspect another share price drop may occur as this filing will likely draw a good deal more attention to the company’s concession agreement predicament.
While a 27%-31% upside looks promising, I would wait on the sidelines until after this upcoming 10-K is filed to see what the share price does. No matter what, come the 12th of June SKAS will lose the ability to be the operator of this one heliport from which all of its revenues come from. If the share price drops further once SKAS files their 10-K, that 27%-31% upside could become a 50% upside or more. If this were to happen, astronomical odds are that investors will see a very nice special dividend as the company has to wind down its business and return money back to its investors.
While SKAS shows real potential for some upside now, any dividend the company pays out after it winds down its heliport operations may take some time to be announced. While it’s improbable, it’s not impossible to think that SKAS could potentially find another revenue stream. April is four whole months away and I am just going to keep my money on the sidelines and watch what happens with SKAS. Since we know that SKAS will lose the ability to generate revenue in June we can view the company’s assets at a time closer to that date, likely after the share price has fallen further and we can take much less of a risk that will reap rewards over a much shorter span of time. A lot can change in the next four months and I want to be able to factor all of that in before pulling the trigger on this stock.
I do not own shares of Saker Aviation Services, Inc. (OTCQB: SKAS). This is not financial advice. I am not a financial advisor. Do your own research.
A few issues here.
First, there is no way the customer deposits disappear without a corresponding change on the asset side. If the deposits are simply returned to customers, clearly the cash balance will decrease correspondingly. Same thing if they are transferred to the company replacing them. If they fulfil the service, then their cash will decrease by somewhere around: customer deposits * (1-net margin before interest). Fulfilling the contracts comes at a cost - that's why their margins aren't 100%.
Second, those prepaid expenses. I don't know the business so I don't know exactly what these pertain to. It's possible they go to waste - as in, they aren't able to utilise or refund the product or service they've prepaid for. In which case those are a zero. If they are able to fully or partially use those expenses to provide a service, OR transfer them to the incoming operator, then they may be worth near par.
Finally, tax. Dividends this pays will be taxed at your income tax rate, while capital losses can only be used to offset capital gains taxes, usually at a lower rate. Say you personally pay 30% income tax and only 10% capital gains tax - if you put $800 in, and they pay out $1000 in dividends, you will only receive $700 of that after tax. The stock will go to 0, so you get an $80 offset to any capital gains realised during the year - but notice that, while it looked like a free 25% return before tax, after tax it's actually a 2.5% loss (you only get $780 back).
Not slating you obviously, as you said you haven't bought shares. But just wanted to make you aware of these things.