Time for Dart to fly back to the top?
“…For those who did not take the over subscribed placing in May at £5.765p, this looks a decent entry level around £6.30 for the march back to Januarys share-price of £20…”
In 1983, Express Air Services was purchased by Dart Group’s current CEO, Philip Meeson, and changed its name to Channel Express Group Ltd, to identify with its regional route to the Channel Islands. Three companies functioned as separate operations in the Channel Express Group, for airfreighting, the maintenance of two Dart Herald Aircraft, and road distribution within the UK. Channel Express Group Ltd floated on the UK’s Unlisted Securities Market (USM). By 1991, the company changed to its current name Dart Group PLC and was floated on the London Stock Exchange, before moving to AIM in 2005.
Last week, Travel business Dart Group (DTG.L) saw its annual profits drop following the mass cancellation of flights and various travel restrictions in March. The Jet2.com and Jet2Holidays parent company recorded an 11 per cent decline in profits in the year to March 31 despite its revenues moving sharply up by more than a fifth to £3.6billion. The companies flying programme was suspended in mid-March as the Covid outbreak caused less people to travel abroad, and governments across the world began to impose limits on foreign and domestic travel.
For those who did not take the placing in the company back in May at 576.5p, this current price of £6.30 looks a decent entry level for the march back to Januarys share-price of £20. So, why should you consider having a look at Dart Group?
Firstly the balance sheet is in a very healthy position. Dart’s total cash balance grew 9 per cent to £1.39billion by the end of the financial year. Since then, it had also applied for £300million of finance under the Bank of England’s Covid Corporate Financing Facility (CCFF). They also have 38 aircraft they could securitise and an RCF. Interesting that the aircraft leasing companies have offered them a one year payment holiday, with a 2-3 year pay back, way ahead of anyone else in the sector.
Secondly, the competition is second division standard! Dart is up to around 4 million customers in the latest ATOL figures. The biggest player TUI has 5.5 million, and On The Beach 1.5 million. It is well known that TUI is in a “mess”. The company has been bailed out by the Germans once, but is still running with huge net debt and ‘borrowing’ from customer deposits, they also have commitments with aircraft, shops, ships and hotels. Dart only has aircraft. Like Thomas Cook, there is no doubt that TUI’s service levels will drift. TUI cannot go on a big expansion spree. As far as OTB is concerned, they are massively capacity constrained with no aircraft, as airlines have shut routes. As and when the market does come back, airlines will surely be more disciplined in expanding fleets. Easyjets largest shareholder has already said as much! So OTB will be capacity constrained…….witness the price inflation that came into the market when Thomas Cook went bust. Dart will be the only ones who can capitalise on that as they can obviously manage their own capacity.
Lets look at some of the numbers. If we assume that the world normalises next year, or even the year after, the last year the company made 100p of earnings, accelerating in H2 as Thomas Cook went bust. So if capacity comes out of the market and pricing goes up, it is quite feasible they can make 150-200p in a ‘normal market’. Afterall they have just been voted number 2 out of 72 in the ‘Money Saving Expert’ survey. Existing customers seem loyal. Say the market ‘normalises’ after three years, the shares are on 3.5x that recovery earnings number. Historically they have traded anywhere between 9 and 16x. Even if they get back to the lower end of that range, you get to roughly £20 a share…the price in January pre “Covid”. Lets assume that “Mr Market” will start to price all this in well before we get to that point and you can start to see that at around £6 a share there looks a decent opportunity.
The shares have recently fallen 25% because people are concerned about a second spike in Covid. A lot of “bad news” has been factored in, so any one looking for a cashed up recovery play could do a lot worse than considering Dart Group as a punt.
The video below shows the Pilots going about their daily lives in lockdown, from cleaning the house and mowing the lawn, to helping with home-schooling. The video jumps from those lockdown moments to show how ready and raring they are to get flying again once the restrictions are lifted.
The video is the brainchild of Captain Dave Thomas (in the hot tub!). He said: “We love flying our customers away to enjoy their holidays and create happy memories, and we cannot wait to be doing that again. We thought this video would demonstrate how much we look forward to welcoming everybody back on board, whilst giving everyone a smile at the same time.” Well done Captain Dave!