In a previous post I had a quick look at Dart Group PLC. An initial glance at the company suggested that a very defensive balance sheet that generated reasonable returns lay behind a very low valuation.
To be honest, I had forgotten to go back and do some in-depth research of the annual reports. There were three principal reasons as to my neglect:
(ii) The company generates much of its returns from its airline division. In the airline industry companies with returns such as Ryanair have been the exception rather than the rule. It has been a dreadful sector for investors.
(iii) I was wary of the momentum. The stock has not participated at all in the risk on/value rally of the past three to four months. It just drifts downwards in a reasonably well-behaved downtrend.
A recent post at Kelpie-Capital has put the stock back on my radar screen once again.
Who are Dart Group plc?
Dart Group PLC is an aviation services and distribution company. The Company is specialized in the operation of leisure aviation services throughout Europe, and the distribution of fresh produce and temperature-controlled and ambient products to supermarkets and wholesale markets throughout the United Kingdom. The Company operates in two segments: Aviation and Distribution. The Aviation division consists of its leisure airline, tour operation and associated commercial activities, trading under the Jet2.com and Jet2holidays brands. The Distribution business, Fowler Welch, is a logistics provider serving the United Kingdom retailers, importers and manufacturers. During the fiscal year ended March 31, 2011 (fiscal 2011), the Company operated over 800 passenger charter flights. Its subsidiaries include Fowler Welch-Coolchain Limited, Jet2.com Limited and Jet2holidays Limited.
Market Capitalisation: £85m
Share Price: 62p
Freefloat: c. 27%
Dart Group is interesting in that the equity has de-rated pretty significantly despite profitability and returns remaining in line with the long run average. It would seem as if this is a stock that has simply been forgotten by the market.
I was initially wary of the industries that the company operates in. Both airlines and distribution are extremely competitive with very low barriers to entry. Return on assets has remained reasonably stable over time, while the return on equity of almost…