Stobart Group – runways cleared and ready for take off
This group has been through some hairy old times over the last couple of years or so, but now I reckon that the resultant streamlining of its activities will help to catapult its shares upwards.
The recently announced results from the Stobart Group (LON:STOB) need a real mathematicians brain to follow through. But it really is just a matter of the Finance Director satisfying the various accountant’s rules – putting this in, taking that out and restating the previous years etc etc.
Anyway, the results for the year to end February 2019 reported group revenue up from £105.37m to £146.89m, with pre-tax profits falling from £109.32m to a loss of £42.11m.
Although earnings fell from 34.33p to a loss of 4.74p per share, the real pointer to what is going on in the streamlining was shown by the dividend of 9p per share being announced.
Now, I take the view that if the Board wanted or needed to do a complete ‘kitchen sink’ job on its accounts then they need not have even tried to pay shareholders a dividend at all.
Looking closer at the happenings of the last few years indicates that the way the group is now shaped will leave it becoming an attractive investment, one capable of significant early capital gain.
Today the Stobart Group has three main divisions – Aviation, Energy and Civil Engineering.
And each of them is looking for sensible growth being delivered in a short time frame.
Stobart Aviation includes London’s fastest growing airport, which is London Southend Airport. It also includes Stobart Jet Centre, which offers executive jet services. In addition the division also takes in two further airports; Carlisle Lake District Airport and Durham Tees Valley Airport.
Its Aviation Services side provides ground handling and check-in services for airlines including easyJet and Loganair, and operates across London Stansted, London Southend, Edinburgh and Glasgow airports.
London Southend airport should benefit from significant passenger growth in 2019 and 2020, thanks to new and expanded agreements with Ryanair and Loganair airlines. The Group is also looking to enhance its customer proposition, thereby allowing non-aeronautical revenues to mature over time.
Last year 1.5m passengers went through the airport, however the Group now has set a target of handling 5m passengers by 2022, and then 10m by 2025. And to cater for those numbers it is making the appropriate investments in the infrastructure.
Stobart Energy is the UK’s number one supplier of biomass fuel, with long-term contracts in place to supply 2m tonnes of fuel to Energy Recovery Facilities, generating renewable clean energy equivalent to the annual domestic electricity needs of 2% of the UK population.
Stobart Rail & Civils is one of the UK’s leading providers of innovative and efficient rail and non-rail civil engineering projects. It delivers design, construction, maintenance and enhancement projects for both the rail and non-rail sectors. It also manages specialist industrial and commercial schemes.
The 2018/2019 year was transformational for the Stobart Group.
A number of disposals, hence the impairments and special maths in the balance sheet, were deemed necessary as the Board handled the pruning and focussing of its main operating divisions.
The Group’s clear emphasis is on developing its assets in both its aviation and its energy businesses, using existing cash resources boosted by further non-core asset disposals.
Brokers are estimating that for this current year, to end February 2020, its revenue will almost double to £287.45m, with pre-tax profits leaping to £16.10m, worth 4.72p in earnings and with its dividend coming out at an uncovered 6p per share.
The prospective 2021 year could see £327.29m of revenue and £26.55m of profits, with 6.82p of earnings and again a 6p per share dividend.
Against these estimates it is well worth noting that, at the end of May and the beginning of this month, four of the Group’s Directors were buying the Company’s shares at around the current price. I just love it when the Insiders really take a view on their own company stock.
Of the 377,821,715 shares in issue the following have notable stakes in the equity: Invesco (26.30%), Woodford (19.50%), M&G (4.96%), Miton (3.12%), Royal London (2.50%), Vanguard (1.98%), Hargreave Hale (1.94%), and Legal & General (1.73%). Two private shareholders have meaningful stakes: Andrew Tinkler (5.81%) and Alan Jenkinson (5.52%).
It will take a while for all of the streamlining to really take effect as the Group’s new focussing gets well underway.
By the time that it starts to show through I believe that Stobart Group’s shares will be on the rise and a lot higher than the current 106p level.
I set an easy end 2021 Target Price of 175p.