By Bargain Value UK
Today, we will look on the last stock from our folio. It is the company from “Travel and Leisure” sector and a representative of a FTSE Small Cap index. The Flybe Group engages in on operation of airlines through two segments: Flybe UK and Flybe Aviation Services. The Flybe UK segment offers scheduled passenger transportation in the United Kingdom, as well as scheduled passenger transportation from the United Kingdom to rest of Europe. The Flybe Aviation Services segment provides aviation services, including maintenance, repair, and overhaul services to customers in Western Europe, as well as serves third-party customers.
Purchase price (11.12.2015): 93.50 GBp
We all know, that the airplane business is very though, so let’s take a look on this company from the stability point of view:
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FLYB had got a great first semester of 2011, than a stable period up to the end of 2013 with an average revenues of £ 618 ml annually. The 2014 was a bit of worse, but as we can see, the revenues are back on track in 2015 (£ 605 ml) and if the pace is maintained, they will higher, than in 2011-2013 period.
The revenues are relatively safe, although the annual net profit don’s look as good:
This chart shows, that the company has got two harsh periods: 2012-2013 and 2014. In the first case, the negative net profit was connected with flat-lining economy, a very high fuel costs and the depreciation of pound against US dollar. As we can see, the airline business is very dependent on the economic conditions and political regulations (e.g. punitive levels of Air Passenger Duty). The 2014 was full of one-time events, which hadn’t a positive impact on FLYB results. For example, the impairment of Finland division, which has generated a loss of £9ml. However, even with a lot of trouble the company is still developing and taking a proactive attitude like reducing costs. The first semester of 2015 was a lot better for FLYB and it has generated a positive net profit. There is a lot of chance, that the positive results will be maintained in the near future.
We have said, that the company is still developing. Let’s take a look on the cash flows and check, if they prove this:
The chart shows a long period of very high, positive financial flow and after that, a period of high, negative investing flow. FLYB is putting money up to its projects and the positive operating cash flow is a good sign, which proves, that the company is not in a big trouble, despite a couple of hard periods.
Let’s now focus on the debt. The chart below presents the total debt and how it was changing during the last 4 years:
As we can see, the tendency is for the reduction of this ratio. It is good, because FLYB has got total debt higher, than an industrial average (65.48%) by about 3 p.p.. The current ratio is also healthy on the level of 1.3 and it is a lot higher, than for the travel industry (0,77). Due to this fact, the company has got no trouble with solvency and is far from bankruptcy.
What about their profitability? The chart below shows the main indicators:
As we can see, they are rising and if the company maintains the positive returns, they will go up in the future. However, the management should focus more on this kind of metrics, because in comparison to the industry (ROE = 13.21%, ROA = 3.95%), they are not outstanding, even in the better, recent period.
Let’s check how much we will need to pay for FLYB and if it is not overpriced.
The only possible conclusion is that, the current stock price is very low and the company is rather undervalued, than overvalued. There is a lot of place to growth. On last chart, you can check the how the price has behaved in the past:
The price is going down lately, but at the level of £ 55.00 is a strong resistance and it is one more reason, to treat this company as a good, long-term investment. It is a certain bargain.
Flybe Group is a company, which operates in a very harsh airline business. It is very volatile to market conditions, but the management is very effective and can respond to market changes. We belive, that the company will perform better in the future and will be able to bring profits to investors, despite the bad, recent performance of the stock price.
Current price (23.02.2016): 69.75 GBp (-25.40%)