Stobart Group (STOB) has ambitious plans to substantially grow its aviation and energy divisions while at the same time paying a bumper dividend, all funded through disposals of non-core assets and businesses.
Expansion at Southend airport
Ongoing non-core property disposals
High dividend yield
Growth in energy
Execution risk
Previous delays to energy contracts
The person overseeing Stobart's ambitious divestment and expansion strategy is newly appointed chief executive and former easyJet chief operating officer Warwick Brady. Mr Brady's background in the aviation industry makes a good fit with a key part of Stobart's growth plan, which involves growing passenger numbers at its London Southend airport from 1.1m last year to 5m by 2022, which is hoped to take the division's cash profits from £2.9m to £50m.
To achieve the aim of making more Londoners realise that there actually is an airport east of the city, about £40m has been earmarked to be spent on marketing and awareness, developing new routes and attracting new airlines. Stobart has already spent £10m of the total, with the rest expected to be spread over the next three years. While headwinds have arisen due to the collapse of several airlines last year, which freed up capacity at rival airports, the company was able to attract a new airline, Air Malta, to Southend last year and add 11 new European destinations. Efforts to attract more passengers should be helped by the opening of Crossrail, which will improve the accessibility of the airport from London, as should the long-term issue of constrained capacity at London's main airports.
While Southend Airport is the jewel in the aviation division's crown, Stobart also runs Carlisle Lake District Airport, from which commercial flights will start next month. Stobart Aviation Services runs some of the ground handling activities at London Stansted airport. The group also operates a regional airline, Stobart Air, which saw a 9 per cent increase in passenger numbers last year. In addition, the aviation division offers a private jet service and owns a plane-leasing business.
Energy is the other major focus of Stobart's expansion. This division supplies renewable fuel to energy plants, as well as offering design, building and management services. While commissioning delays hit performance last year, energy made the biggest contribution of all the operating divisions to underlying cash profits of £12.1m. Having ended last financial year with a run-rate of 1.3m tonnes per year, and with three major plants due to come on stream this year, management believes the division is on target for its 2022 run-rate goal of 3m tonnes, from which it believes it will be able to generate cash profits of £36m.
The group's rail and civil division provides infrastructure services to both the aviation and energy businesses, as well as external clients, and management believes cash profits can be grown from £4.4m last year (which represented a 13 per cent increase despite a 15 per cent fall in sales) to £10m over the medium term. The group has also set up an investment arm, Stobart Capital, to invest in both its own and other companies' projects.
If Stobart can hit its lofty ambitions, profits from its operations should be able to cover its generous dividend by 2023. Until then, though, Stobart will be relying on the sale of non-core assets to fund both its expansion and dividend. The group had a major windfall last year when it banked a £124m profit from floating Eddie Stobart Logistics on Aim, which included the receipt of £112m cash. A 12.5 per cent stake has been retained, currently valued at £63m, and Stobart intends to sell in due course. Stobart also sold four properties from its infrastructure division for £27.3m last year and has plenty more in the tank with its remaining infrastructure assets valued at £127m. Broker Stifel forecasts annual proceeds from disposals of about £30m over the coming years.
STOBART GROUP (STOB) | ||||
ORD PRICE: | 237p | MARKET VALUE: | £821m | |
TOUCH: | 237-238p | 12-MONTH HIGH: | 304p | LOW: 217p |
FW DIVIDEND YIELD: | 8.1% | FW PE RATIO: | 12 | |
NET ASSET VALUE: | 117p | NET DEBT: | 9% |
Year to 28 Feb | Revenue (£m) | Pre-tax profit (£m)* | Earnings per share (p)* | Dividend per share (p) |
2016 | 127 | 18.4 | 3.9 | 6.0 |
2017 | 129 | 27.4 | 8.0 | 13.5 |
2018 | 242 | 117.4 | 32.6 | 18.0 |
2019** | 342 | 20.5 | 18.5 | 18.5 |
2020** | 416 | 40.3 | 19.1 | 19.1 |
% change | +22 | +97 | +3 | +3 |
Normal market size: | 7,500 | |||
Beta: | 0.85 | |||
*Stifel forecasts, adjusted PTP and EPS figures |