I am confident that the BBA Aviation (LSE: BBA) strong grip on the US aviation support market should lay the groundwork for brilliant earnings growth long into the future.
The FTSE 250 business saw revenues jump 10% in 2017, to $2.37bn, as its core Signature division, responsible for more than four-fifths of group underlying operating profit, outperformed the broader market. And the arm has seen business momentum really picking up in recent months, organic revenue growth of 4.4% during July-December outperforming sales expansion of the broader US business and general aviation (or B&GA) segment in which turnover rose by a more modest 4.1%.
Signature is the planet’s biggest fixed base operation (FBO) network for B&GA customers, operating in more than 200 locations spanning the globe and which includes 37 locations in the 50 largest airports in the US. This formidable footprint leaves BBA Aviation in prime position to harness the steady growth in aviation traffic in the years ahead.
What’s more, BBA Aviation has teased the market with hints that additional M&A action could be on the cards through the cultivation of more small bolt-on purchases. The company certainly has the financial firepower to pursue such earnings-boosting action — it secured a four-year extension to an existing $650m loan earlier this month which had been due to mature in March 2019.
BBA Aviation has seen earnings grow by double-digit percentages of late as the 2015 acquisition of rival Landmark has borne fruit. And it is expected to keep this run going with an extra 10% improvement in 2018. A more modest 7% rise is forecast for next year, although this is not to be scoffed at.
What’s more, the flying ace’s bright earnings outlook is expected to keep pushing dividends higher too, meaning investors can enjoy an added bonus of juicy 3.3% and 3.5% yields for this year and next respectively.
A forward P/E ratio of 16.9 times may be slightly toppy on paper, falling outside the widely-regarded value terrain of 15 times or below. However, I would consider this a reasonable price given BBA Aviation’s exceptional position in a market with terrific structural growth opportunities.
A breath of fresh air
Porvair (LSE: PRV) is another share with exceptional long-term revenues opportunities. The filtration specialist saw revenues reach an annual record of £116.4m in the 12 months to November 2017, its ability to source and integrate acquisition targets again continuing to help drive the top line.
Its approach to M&A gives it a leading position in a number of growing niches which carry exceptional barriers to entry, and helped by its formidable cash generation Porvair is showing no signs of slowing down yet. Indeed, it snapped up filter cartridge giant Keystone just last month to bolster its sales opportunities in the gigantic US market.
Now Porvair boasts a long record of unbroken profits growth, the bottom line having swelled by double-digit percentages in more recent years. And City brokers expect this proud history to keep running, rises of 3% and 5% being forecast for fiscal 2018 and 2019 respectively.
The small-cap may deal on an elevated prospective P/E ratio of 24.2 times. But I believe Porvair’s expertise in many specialist markets across the globe makes it worthy of a premium rating.