Stobart Group (LSE: STOB) still evokes cult lorry group Eddie Stobart but those days are over and it is now taking flight as the owner of London’s Southend Airport.
On the runway
The FTSE 250 group has climbed 10% at time of writing after its final results showed a 39% rise in total group revenues to £146.9m. Adjusted underlying EBITDA from its two main operating divisions, Aviation and Energy, jumped 75% to £24.1m. However, this didn’t stop it from swinging to a loss of £58.2m, down from a profit of £100m in the year to 28 February 2018.
Management pinned these losses on a number of factors, including airline marketing costs, appreciation from continuing operations, impairment charges, and discontinued operations. Clearly none of these were enough to worry investors.
The Stobart Group share price is still down 50% over what has been a difficult year for the group, which included a messy boardroom battle as former chief executive Andrew Tinkler attempted to oust current chairman Iain Ferguson.
Long-term fan Royston Wild says it has also been hit by declining risk appetite, a slew of troubling market updates and delays in commissioning third-party energy plants at its Energy division. When he wrote that in January, the group yielded around 11%. The dividend has since been cut and the forecast yield is now 5.1%, with cover of just 0.8.
Ready for take-off
Stobart Group stock now trades at a pricey looking 32 times earnings, but the future looks brighter. Its prime focus is Southend Airport, less than an hour away from central London by train, with flights to more than 40 destinations boosted by a recent hook-up with Ryanair. It took 1.5m passengers last year, expects 2.5m this year and is aiming for 5m by 2023.
Earnings and profits could fly if it establishes itself as a rival to the main London hubs. City analysts expect earnings to rise 149% next year, and 45% the year after. It looks a tempting bet to me, even if its rail and civil engineering business needs an overhaul.
It’s been a tough year for the budget airline sector, with British carrier Flybmi, Icelandic-owned Wow and Berlin-based Germania all going bust in 2019. Ryanair’s stock is down a third after reporting its first loss since 2014 in February, while easyJet halved as drone disruption and high fuel costs triggered a half-year £275m loss.
FTSE 250 low-cost operator Wizz Air (LSE: WIZZ) has had a better time of it, its stock has fallen ‘just’ 10% in the last year. Brexit uncertainty, green taxes and fierce competition have hit profits forcing Wizz to lower its half-year net profit guidance to between €270m and €300m. Peter Stephens anticipates share price volatility but with long-term growth prospects.
However, in April it reported carrying 19% more passengers than the same month last year, to 3.28m, driven by a 17.6% increase in its capacity to 3.57m seats. Wizz also has exposure to faster-growing central and eastern European economies and is deploying its new Airbus 321ceo aircraft at a new base in Krakow, Poland.
The £2.29bn group is valued at 12.1 times forward earnings and prospects look brighter after a difficult year, as analysts pencil in 25% and 23% earnings growth over the next couple of years. We’ll find out more when Wizz publishes its final results on Friday.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Wizz Air Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.