As a result, a number of these holdings warrant an update, including Air Partner (AIP: 445p), a provider of aviation services to industry, commerce, governments and private individuals worldwide. When I first I flagged up the investment case at the start of the year, the share price was 310p, which meant I was able to buy into a solid 6 per cent dividend yield and a recovery play on a modest 6.5 times earnings estimates net of cash ('A share ready to take off', 7 January 2013). Even after a run-up to 380p that yield was still very attractive - around 5.2 per cent for the financial year to end July 2013 - and an earnings multiple of eight was low enough for the shares to continue their ascent ('Get ready for take-off', 7 August 2013).
In fact, I was so positive the shares would continue their ascent that I raised my original target price of 370p to 450p last month, noting that this upgrade was warranted both on valuation grounds and given the positive trends in the business. So, with the shares cruising up to this level, and the company due to report the aforementioned full-year results in the coming weeks, an update is in order and one in which I have no hesitation in maintaining my positive stance. In fact, a good news story is in the bag in a few weeks' time when the company is set to report a strong recovery in earnings.
Earnings recovery
In a pre-close trading statement, 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. Importantly, I expect the board to reveal that these trends have continued since the company went into a closed period.
In fact, Air Partner has been beefing up its senior personnel, having appointed Paul Richardson as director of its Private Jet Division. Stepping up its private jet activity seems a sensible move since the company's JetCard programme has been running at record levels, and Air Partner sold its first $1m JetCard earlier this year. Mr Richardson has over20 years of highly relevant business experience, having been head of London Private Banking at Coutts & Co and UK managing director at the Swiss wealth manager Helvetia Wealth AG, focusing on high net worth clients and family offices.
Air Partner has also been beefing up its commercial jet business. This operation organises bespoke charters and aviation solutions for groups of every size on airliners seating 20 or more passengers. Clients include the conference and incentive industry, tour and cruise operators, international conglomerates, governments, and humanitarian aid organisations. Since April, Air Partner has launched flying programmes for Silver Ski, Olympic, Sunvil and GIC so bringing in Alan Murray as director of Inclusive Tour Programmes seems a sensible move to grow th business further. Mr Murray has held highly relevant positions in the industry including managing director of First Aviation and director of Monarch Airlines.
Accelerating trends
The addition of well-regarded recruits aside, investors should also be impressed by the company's financial results. Following earnings upgrades, analyst Edward Stanford at broker Oriel Securities expects Air Partner to have increased pre-tax profits from £3.2m reported in the 12 months to July 2012 to £4.2m in the financial year just ended. 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, ahead of the results, 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. That's almost 10 per cent ahead of the prior year. The ex-dividend date is Wednesday 2 October, so there is still time to buy the shares and bank that attractive payout. Trading on a bid-offer spread of 442p to 445p, the prospective yield is still attractive at 4.5 per cent.
Furthermore, strip out that cash pile from the current share price of 445p and, net of cash, the shares are priced on a modest earnings multiple of 10. Or, put it another way, if you strip out that £17.3m cash pile from Air Partner's £45.6m market value, then a business forecast to make £4.2m of operating profit is being attributed a very low value of only £28.3m.
It gets even better when you consider that Oriel has 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) is 10 and the prospective yield rises to 5 per cent. It would be no surpise at all to see more earnings upgrades when Air Partner reports its full-year results on Thursday 10 October.
Positive technical indicators
Interestingly, following the share price ascent, Air Partner's share price looks poised to take out my 450p target price imminently. From a technical perspective, the risk looks firmly skewed to the upside.
The price has tested the 450p level three times since my last article, peaking at 451p on 9 August, again at the same price on 23 August and closing last week at exactly the same level. A close above 455p would signal a triple top breakout on the point & figure chart (five points). With the share price having strong near-term support from the 20-day exponential moving average around 430p, the price is not overextended above its near-term trend line.
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 looks like it could give a positive crossover in the near future. In my opinion, a close above 455p is not only a distinct possibility, but would signal another major chart breakout and one that could lead to a sharp share price rally in the run up to the results on 10 October.
So, ahead of that announcement, I rate Air Partner's shares a short-term buy at 445p and have a newly upgraded fair value price target of 530p which coincides with the April high from 2011. My new target price takes into account the conservative looking earnings estimates for the current financial year, the chart set-up and a continuation of the positive trends in the business. If achieved, this will provide us with a further 19 per cent upside. Even then, the shares would still only been trading on 13 times July 2014 earnings estimates net of cash and the yield would be around 3.8 per cent. Trading buy.
Please note my next column will be published at 12pm tomorrow. Also, in response to requests from dozens of readers, I have published an article outlining the content of my new book, Stock Picking for Profit: 'Secrets to successful stock picking'
