Time for Stobart to fly?
“So with a market cap of around £150m and cash of aprox £110m is Stobart worth a look at 25p?”
Shares of Carlisle-based aviation and energy firm Stobart Group which operates London Southend Airport has had a tricky year. Shares were around £1 at the start of the year and now languish at just above a years low of 23p.
EasyJet recently confirmed that it would cease its operations at Southend Airport. Build in that Stobart Group furloughed 50 per cent of its staff as part of a range of measures implemented to protect the firm against the coronavirus pandemic in addition to putting roughly 750 employees on the government’s job retention scheme, and the firm has also scrapped its financial guidance for the year is this yet another company to avoid at all costs? We think not…
So, out of cash?
No! Any thing but. In June Stobart completed a placing of shares at 40p to raise £100 million. The Carlisle-based company is to use the net proceeds from the equity issue for general corporate purposes, including repayment of certain amounts drawn under the revolving credit facility, and to support the Aviation and Energy business. Funds will also be used for selective investments including airport infrastructure for a post Covid-19 world.
In annual results Stobart Group posted a sharply widened loss for financial year 2020. The owner of London Southend Airport also said that it will pursue a new business strategy recognising the changes in the economic and social environment due to the virus outbreak. As part of its strategy, the company plans to focus on its Aviation unit, which includes the London Southend Airport, and realise value for its Energy business as it starts to benefit from the resumption of activity in the construction sector. Stobart also plans to withdraw from its Rails & Civils business during this year. Also, the company have said all other non-core businesses or assets will be realised for value over the next three years.
CEO Warwick Brady said: “We are announcing a clear plan to stabilise the business and provide a secure platform to move forward. We have a cost-efficient proposition for airlines and will further develop our passenger-focused airport experience that seeks to maintain passenger flow and provide enhanced customer confidence. Therefore, we will focus our investment and our business in this asset by seeking to dispose of our non-core businesses and, in due course, monetise Stobart Energy. The launch capital raise that we have announced will provide the Group with the financial resilience necessary in the current environment and ultimately to position the business for success in the post Covid environment”.
The company also entered into an amended facility agreement comprising the original £80m revolving credit facility plus a new £40m revolving credit agreement. For the year ended February 29, Stobart posted a pretax loss of £158m, compared with a pretax loss of £42.1m loss in the same period a year ago. Revenue increased 16% to £170.2m from £146.9m. Core Aviation unit saw a 44% jump in revenue to £56.8m, while Energy unit recorded a 17% rise to just over £65.1m. The widened annual loss was mainly due to a sharp jump in exceptional charges, including impairments, which totalled £138.6m versus £28.9m.
Stobart said: “Impairments includes the write down of the Connect Airways loans that are deemed to have nil value following Flybe and Connect Airways entering administration post year end. Infrastructure assets have been written down by £26.6m, including CLDA and Widnes development land”
Post year end, the group disposed of the Stobart and Eddie Stobart brands, driving a £19.9m impairment to align the year end value with the contractual consideration. Underlying earnings before interest, tax, depreciation and amortisation, jumped 48% year-on-year to £16m. Cash at the end of the financial 2020 year amounted to £9m
Was there not a bid on the table for the main asset?
In late march, Sky News reported that AviAlliance, a German company which operates airports in Athens, Budapest and Puerto Rico, has tabled a bid to acquire a 25% stake in London Southend. Shares soared from 40p to 70p in the week or so when the company confirmed it was in early stage talks regarding a potential sale of a stake in its main asset, London Southend Airport. Stobart later confirmed it has been in ‘detailed discussions for several months’ regarding an initial minority investment from a potential ‘strategic airport development partner’, with the talks indicating a value for Southend of around £750m, five times the current market cap and before the company had raised the additional £100m. Then “Lockdown” really started to bite in the UK and all plans were put on hold. Will talks now resume now we have the easing of Lockdown?
Do the Directors have any skin in the game?
Recently Directors have been buying stock. Last week CFO Lewis Girdwood purchased 50,000 shares at a fraction under 25p to take his holding to 300,000 shares. A few days before that NED Clive Condie purchased 185,000 shares at 28.5p. The majority of the Directors also took shares in the recent capital raise. The Directors subscribed for an aggregate of approximately £356,000 of New Shares, through the recent Placing.
The Company’s largest shareholder, Toscafund Asset Management, holds just under 24% of the company.
So with a market cap of around £150m and cash of aprox £110m is Stobart worth a look at 25p?
Here, in this video the staff seem to enjoy their work at the Airport…
The author was compensated for this article but does not hold shares in the company.
