Good quality small companies can often continue growing for much longer than you expect. I believe that aviation services firm Air Partner (LSE: AIR) could be one such company.
It issued an unscheduled update today advising the market that underlying pre-tax profit for the current year should be ahead of expectations at “not less than £6.4m”. City analysts had been forecasting a figure of £5.9m for 2017/18 and today’s guidance implies an increase of 25% from the £5.1m figure reported last year.
The group’s businesses include training, air traffic control and brokerage services, but its main business is air chartering. This includes private jet chartering, freight and a specialist business which can provide air transport for emergency situations, such as natural disasters.
Three things I like
I’m attracted to Air Partner for a number of reasons. The first is that despite regular acquisitions, the group’s operating margin has risen steadily, reaching 10.4% last year. Return on capital employed has also strengthened, which suggests to me that acquisitions are chosen well and priced fairly.
Cash generation is also strong. The Gatwick-based group has maintained a net cash balance consistently since at least 2012, and has delivered dividend growth averaging 10% per year over this period.
Despite these advantages, the stock remains relatively affordable. The shares now trade on a forecast P/E of 17.4, with a prospective yield of 3.8%. With earnings growth of 10% pencilled in for the year ahead, I believe Air Partner is still worth buying.
A strong recovery
Equipment hire group Speedy Hire (LSE: SDY) ran into trouble a couple of years ago. But in my view the firm’s management have delivered a decisive turnaround, backed by a healthy balance sheet.
The shares dipped earlier this week due to investor concerns over money owed to the group by collapsed construction firm Carillion. However, this doesn’t seem to be a major concern. Speedy Hire’s total revenue last year was in the region of £380m. Of this, revenue from Carillion totalled about £12m, of which £2m was outstanding at the time of its collapse.
Speedy Hire’s management does not expect the collapse of Carillion to have a material impact on the group, and has left guidance for the year unchanged. Based on the latest broker forecasts, this means that adjusted earnings should rise by 46% to 3.57p per share this year.
This momentum is expected to continue into 2018/19, with analysts projecting a further increase of 27% in the group’s earnings per share next year.
This strong momentum puts Speedy Hire on a forecast P/E of 16 for the current year, falling to a P/E of 12.6 next year. A useful 2.4% yield is also forecast and should be covered by surplus cash, providing an additional attraction for shareholders.
With no signs of a slowdown in the UK construction market, I believe the outlook for the firm is strong. In my view, Speedy Hire’s strong momentum and healthy finances suggest the stock remains a potential buy.
