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Forget the FTSE 100! I’m considering these mid-caps for 2019

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After several weeks of due diligence, today Stobart Group (LSE: STOB) announced that it’s joining forces with Virgin Atlantic to buy troubled UK regional airline Flybe for £2.2m. 

The two bidders have formed a company called Connect Airways which will pay 1p per share for Flybe, a shocking result for investors as only yesterday the shares were changing hands for 16.4p. Flybe has accepted the offer and, once complete, its planes will be rebranded with the Virgin livery.

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Distressed assets 

It is easy to see why bidders have decided to swoop on Flybe. The business operates the UK’s largest regional airline, managing 55% of UK domestic flights outside of London, and owns some valuable landing slots at key airports.

Together, Stobart and Virgin should be able to give the firm a new lease of life. Stobart Air already owns Southend Airport and has an extensive aviation division. Meanwhile, Virgin has global connections and code-sharing agreements with other large, international carriers.

As well as forking out £2.2m to buy Flybe’s equity, the partners are also putting £20m into the business to keep the lights on, and a further £80m of investment is planned in the new enterprise.

Income boost 

Even though the deal still has to be voted through by shareholders, I think the decision to buy Flybe with Virgin could wake up Stobart’s sleepy stock. 

Flybe struggled because it could never really achieve scale. With Virgin on board, the new Connect Airways will have one of the most successful airlines in the world in its corner, which should help the new business take off. 

What’s more, as Stobart already has an aviation division, there should be some synergies to be had here. I’m excited to see what the rest of the year holds for the company as it completes this transformative deal.

Market opportunity 

Another stock that I like the look of for 2019 is National Express (LSE: NEX). As a frequent coach user, I can say with relative confidence that this is a well-run business, especially when compared to the rail network. National Express coaches are not only significantly cheaper than trains, but they also usually get you there on time and don’t suddenly stop running if it gets too cold (or leaves fall on the road). 

As the price of rail travel continues to rise, I can see more and more customers opting for this cheaper option (70% cheaper in some cases). Indeed, more customers are already turning to the company, helping the business to achieve an “outstandingtrading performance over the summer in the UK, according to its latest trading update. Between the 1st of July and the end of September, passenger numbers in the UK expanded by 6% and revenue grew 10.1%. August bank holiday Monday’s revenue was up 13% alone.

This isn’t a new trend. The company has hardly struggled to grow over the past six years. Net profit has increased at a compound annual rate of 17% per annum since 2012, and City analysts have pencilled in earnings per share (EPS) growth of 16% for 2018, followed by an increase of 6% for 2019. On top of this growth, the stock supports a dividend yield of 3.9%.

All in all, I don’t think National Express’ growth is going to slow any time soon, and this could fuel impressive share price gains during 2019.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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