Investors need to be extremely careful as the stock market crash rolls on. But it doesn’t mean they need to pull up the drawbridge entirely. The recent sell-off leaves plenty of buying opportunities for eagle-eyed investors, as we here at The Motley Fool continue to preach. And Signature Aviation’s (LSE: SIG) one such company I myself feel is worthy of serious attention following recent weakness.
A 51% share price drop during the past month leaves it dealing on a forward P/E multiple of 10.1 times, roughly in line with the widely-regarded ‘bargain basement’ benchmark of 10 times and below. On top of this, at current prices, the FTSE 250 business sports a mighty 8.4% dividend yield for 2020.
The airline sector has been one of the biggest casualties of the coronavirus outbreak and the stock market crash. With more national borders closing as I type, the outlook is becoming still foggier. But I reckon the current share price of Signature, which supplies aftermarket services to the business and general aviation markets, reflects the near-term threat to its operations. That’s not only from the coronavirus, but from the possibility of private jet traffic remaining weak should a painful recession set in.
Well prepared for turbulence
The company is the largest fixed base operation (FBO) network provider on the planet, its estate of more than 400 bases spanning five continents. It is most dominant in North America though, a territory that accounts for more than two-thirds of the global jet market alone. This should stand it in good stead to rebound when market conditions improve.
In the meantime, it’s critical to remember that Signature has a track record of outperforming the broader market. In 2019, for instance, organic revenues across its FBOs rose 1.1% year-on-year, much better than the 0.2% growth reported by the US business and general aviation market. And what’s more, the rate at which the London-headquartered business has outpaced the broader market is accelerating. It was up by a full percentage point in the second half of 2019.
Another feather that Signature has in its cap during these tough times is the strength of its balance sheet. Thanks to more impressive cash generation last year, its net debt-to-underlying EBITDA ratio dropped to just 2.2 times. This falls comfortably below the company’s target of between 2.5 times and 3 times. It’s also a long way off the accepted level of 5 times at which debt start to look dangerous.
A top long-term pick
The long-term outlook for Signature Aviation remains quite robust, in my opinion. In a recent report, business-to-business research provider MarketsandMarkets estimated that the North American business jet market would be worth a whopping $36.4bn by 2030. This compares with $24.6bn as of last year and represents a healthy compound annual growth rate of 3.6%.
The Covid-19 outbreak could well put forecasts for the early part of the new decade under pressure. However, with the number of high-net-worth individuals set to keep expanding, Signature’s services should remain in pretty good demand. This is a firm that obviously isn’t without its share of near-term risk. However, its mighty earnings possibilities further out mean that this is a stock worthy of serious attention at current prices, I feel.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Signature Aviation. 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.