Other investors have clearly had the same idea as shares in the company accelerated off the runway and have now cruised above my original target price of 370p. They have been justified, too. In a trading statement a few weeks ago Air Partner's board revealed that trading in the company's commercial jet division was "significantly ahead of the prior year, reflecting new business wins in the tour operator and oil & gas sectors". The company also reported that the performance of the private jet division was ahead of the prior year as the strategic focus in the US and Europe has been generating new opportunities for revenue growth.
Accelerating trends
In fact, the trend is now accelerating, so much so that Air Partner has exceeded analyst earnings expectations for the financial year to end-July 2013. True, some of the contracts won are of a 'one-off' nature, but this has still led to major upgrades from analysts.
For instance, brokerage Oriel Securities had previously predicted that Air Partner would grow pre-tax profits from the £3.2m reported in the 12 months to July 2012 to £3.8m in the financial year just ended. Post three upbeat trading updates in June and July, analyst Edward Stanford at Oriel now expects Air Partner to report pre-tax profits of £4.2m for the 12-month period. In other words, that's 31 per cent higher than in the previous financial year.
On that basis, EPS on continuing operations rises by 25 per cent from 21.3p to 26.6p, which means last year's 18.3p dividend is covered 1.45 times. That cover may look a tad tight, but the board was confident enough to raise the payout by 10 per cent last year and, with the company sitting on a £17.3m cash pile at the end of January, worth 168p a share, the interim payout was raised by 10 per cent to 6.05p a share. Moreover, the board has just announced that it will pay out a 14p second interim dividend of 14p a share on 25 October to make a total of 20.05p a share for the financial year. So, with the shares priced at 382p, the prospective yield is 5.2 per cent.
Furthermore, strip out that cash pile from the current share price of 382p and, net of cash, the shares are trading on a modest earnings multiple of eight. Or, put it another way, if you strip out that £17.3m cash pile from Air Partner's £38.8m market value, then a business forecast to make £4.2m of operating profit is being attributed a ludicrously low value of only £21.5m.
It gets even better when you consider that Oriel has also upgraded its current-year pre-tax profit estimates for the 12 months to end July 2014, conservatively pencilling in pre-tax profits of £4.4m, EPS of 27.8p and a dividend of 22p. On this basis, the forward PE ratio (net of cash) falls to 7.5 and the prospective yield rises to 5.75 per cent. In my opinion, if the current momentum in the business continues over the next couple of months, when Air Partner reports its full-year results on 10 October we could be in line for yet more earnings upgrades.
Positive technical indicators
It's worth noting, too, that following the July trading update, Air Partner's share price has been gaining altitude again, and looks poised to take out the spring highs of 380p imminently. From a technical perspective, the risk looks firmly skewed to the upside. Not only does the share price have strong near-term support from the 20-day exponential moving average around 364p, but importantly the 200-day moving average has acted as a major support since the price hit those highs in March. This not only validates the up-move, but offers the reassurance that investors have been buying strongly on the dips so there is untapped demand to drive the price higher.
It's worth noting, too, that the 14-day RSI reading is not overbought at around 60; and the MACD (moving average convergence/divergence) is above its signal line and is on the verge of giving a positive crossover. In my opinion, a close above 380p is not only a distinct possibility, but would signal a major chart breakout and one that could lead to a sharp share price rally in the run-up to the results in early October.
So, ahead of that next trading update, I rate Air Partner's shares a short-term buy at 382p and have a newly upgraded fair value price target of 450p to take into account the recent earnings upgrades and the very positive chart set-up. If achieved, this will provide us with a further 20 per cent upside. Even then, the shares would still only been trading on 10 times July 2014 earnings estimates and the yield would be almost 5 per cent. Strong buy.
Please note that I have published two articles this week: 'Secrets to successful stock picking' and 'Taking profits'. Last week, I updated the investment case on 18 small-cap shares in nine online articles: 'Small-cap wonders'; 'Deep value plays'; 'Small-cap trading buys'; 'Undervalued and Unloved'; 'Running profits;Capitalising on capital returns'.; 'Indigovision shares slump on warning'; 'Expecting seismic gains' and 'Broking for a successful recovery'.
