Thousands of spectators travelling to this summer's London Olympics will get a birdseye view of Southend. Haulage company Stobart owns the seaside town's airport and a new air service due to start soon could help shareholders take gold.
- Potential for Southend Airport
- Fast-growing biomass business
- Share price below net asset value
- Nice dividend yield
- Tough for the transport side
- Controversial property deal
Stobart bought the airport in 2008 for £21m. Upgrading the site has cost millions more, but it has been worth it. Budget airline easyJet has signed a 10-year contract to use Southend for flights to popular destinations such as Barcelona, Ibiza, Amsterdam, Malaga and Alicante.
About 800,000 passengers are expected to pass through the airport each year, but Stobart's chief executive, Andrew Tinkler, wants more than two million travellers by 2020. That seems realistic given that the airport's new railway station is less than 100 paces from the terminal and London is less than an hour away.
EasyJet will commence flights in April, but the new terminal opens on 28 February, a day before Stobart's year-end. Broker Cenkos Securities predicts £1m of cash profits for the air division, swelling to £2.2m next year and £4.3m in 2013-14. There's potential for more if things go well, and talk is the airport could be worth "a few hundred million" one day.
A new biomass-supply division shows promise, too. Stobart's trucks transport old timber to power stations. Contracts are in place to export around 250,000 tonnes a year to Scandinavia and another 250,000 tonnes to customers over here. Expect more deals soon. Cenkos forecasts cash profits of £9.3m in 2013-14 compared with £0.5m in the six months to August 2011.
STOBART (STOB) | ||||
|---|---|---|---|---|
| ORD PRICE: | 124p | MARKET VALUE: | £432m | |
| TOUCH: | 123-124p | 12-MONTH HIGH/LOW: | 164p | 110p |
| DIVIDEND YIELD: | 5.0% | PE RATIO: | 14 | |
| NET ASSET VALUE: | 131p | NET DEBT: | 16% | |
| Year to 28 Feb | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 109 | 3.5 | 2.3 | 8.0 |
| 2009 | 431 | 22.1 | 9.0 | 6.0 |
| 2010 | 448 | 33.3 | 11.7 | 6.0 |
| 2011 | 500 | 29.5 | 9.0 | 6.0 |
| 2012* | 576 | 39.3 | 8.7 | 6.2 |
| % change | +15 | +33 | -4 | +3 |
Normal market size: 1,800 Matched bargain trading Beta: 0.6 *Cenkos estimates (profits and earnings are not comparable with historic figures) | ||||
True, big contracts with the likes of Tesco, Coca-Cola and Procter & Gamble mean the core Eddie Stobart transport division will continue to make most of the money despite economic headwinds and volatile customer demand. But the growth attraction is in the new ventures, especially as broker Investec has suggested that, if airport volumes hit 2-2.5m passengers a year and biomass volumes grew to 3-4m tonnes a year, the shares could comfortably be worth over £3 each.
But there are distractions. The planned purchase of Wadi Properties for £12.4m plus the assumption of £89m of debt has been controversial. It's being sold by Mr Tinkler and his brother-in-law, Stobart's chief operating officer, William Stobart, and at a premium to net assets. That said, the portfolio should generate returns of over 10 per cent and pre-tax profit of £2.3m. Most of its debt is fixed-rate at just 5 per cent, too, and rumoured tax losses of over £40m could offset gains on disposals by the estates division.
An incentive scheme that could hand directors 38m shares also raises eyebrows. Still, returns must beat the FTSE 250 by 40 per cent, or they get nothing, and by 120 per cent for the maximum pay-out.
