A blow to Neil Woodford, and a stock I see as a growth opportunity

Two companies that shouldn’t be confused: I’m drawn to Stobart Group Ltd. (LSE:STOB), but Neil Woodford probably won’t like the other now.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Aviation is a growing industry, but I’ve always steered clear of investing in airlines due to the high-risk nature of a business that has no real control over its costs and little flexibility in setting prices. The demise of Thomas Cook is a sad, timely reminder of the dangers.

Could a company like Stobart Group (LSE: STOB) be a way into the sector without taking such risks? Shares in Stobart (it’s the one that owns Southend Airport, not the trucking firm) have lost almost half their value over the past 12 months, as the firm has been through a traumatic period.

Dividend

Stobart also did something that often sends shareholders rushing for the exits, when it slashed its dividend last year. And, it is cutting the dividend further in the current year, as it sees more demand for cash and better reinvestment opportunities in an expansion programme.

I think that’s exactly the right thing to do. Last year’s dividend was partly funded by debt, taking net debt up to £83.1m, so it wasn’t sustainable at such levels. It’s also nice to see a company that isn’t stubbornly holding on to its dividend until the very last minute, as so many have done to their shareholders’ ultimate cost.

A first-half update on Wednesday reported a 42% rise in passenger numbers at Southend Airport, boosted by the commencement of Ryanair flights in April, the start of Loganair flights in May, and further growth of easyJet‘s schedule. The expansion of rail services from Liverpool Street, coupled with WizzAir‘s move to reach three new destinations starting November, add to my feeling that we could be at the start of a profitable growth phase for Stobart.

The shares are very hard to value, but I think I’m seeing a tempting growth investment opportunity that deserves closer examination.

The other one

While I’m at it, I thought I’d take a look at the other Stobart, the trucking one with the famous green livery, Eddie Stobart Logistics (LSE: ESL).

ESL (as I’ll call it here to avoid confusion) has had its shares suspended since 23 August after a £2m accounting error in its 2018 accounts was revealed, providing a fresh blow to Neil Woodford. Woodford, whose Equity Income Fund remains suspended after further confirmation was released this week, owns around 23% of ESL’s shares.

The firm has since told us that full-year operating profit will be significantly below its previous expectations, that it is in talks with lenders, and is looking at plans for a new equity issue. The dividend for 2019, which had been predicted to yield 9.3%, has been scrapped.

Too cheap now?

The shares had a price-to-earnings ratio of only around five, though I expect the share price to drop further when trading restarts. Could we be looking at a recovery prospect at a bargain price? Several major investors seem to think so, with DBAY Advisors the first to show its hand with a takeover approach.

The ex-CEO of Stobart Group (the airport one, not the trucking one) Andrew Tinkler has also made an approach, though there’s no guarantee that anything will come of either. But I think ESL is definitely one to watch, and will be interest in whatever the short-term throws up.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Alan Oscroft 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.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I invest in the FTSE 100 – or try to beat it?

Our writer has the option of investing in a FTSE 100 tracker fund. So why does he choose to buy…

Read more »

Young black woman walking in Central London for shopping
Investing Articles

£1,500 to invest in a Stocks and Shares ISA? Here’s how I’d do it

Our writer has been investing in his Stocks and Shares ISA. Here he details how he could put £1,500 in…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

2 top FTSE 100 shares I’d buy before the market rebounds!

Christopher Ruane identifies a pair of FTSE 100 shares that have both tumbled in the past year and that he…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

Here’s why the next bull market may have already begun

The UK stock market has taken the Bank of England's interest rate hike in its stride and green shoots suggest…

Read more »

Gold medal
Investing Articles

No contest! Here’s my stock of the week

An update from this company offered some relief from the economic gloom. It's this Fool's stock of the week.

Read more »

Cogs turning against each other
Investing Articles

Scottish Mortgage shares are back on the rise: is now the time to jump onboard?

Scottish Mortgage shares have risen over 25% in the past 30 days. This Fool takes a look at why and…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Why do Lloyds shares seem so cheap?

Lloyds shares have been losing ground and now look cheap on some valuations. So why has our writer removed the…

Read more »

Investing Articles

How to invest in shares to help beat inflation

Soaring prices could well outstrip our investing returns this year. I think it's more important to find shares to beat…

Read more »