Good morning!
I'm very impressed with how you're looking after the markets in my absence - my portfolio keeps going up, so we celebrated with rib-eye steaks last night, overlooking the Mediterranean, courtesy of some strong performers in my portfolio. No mosquitoes here in Spain either, so that's a big plus compared with Greece last year. Eating & drinking are good value, given the strength of sterling versus the Euro.
A good start to today too, with a positive update from Flybe. Let's start with that one.
Flybe (LON:FLYB)
Share price: 77.4p (up 9% today)
No. shares: 216.7m
Market cap: £167.7m
(at the time of writing, I hold a long position in this share)
Trading update - the market has responded positively to today's update, with the shares rising 9%, so they have now recouped about half the losses incurred with the profit warning in Jan 2015. It confirms my belief that when a fundamentally sound company with a strong balance sheet warns on profit, the shares usually recover within about a year. Although general rules are dangerous, because each situation is unique, and hence has to be carefully weighed up.
Today's update covers Q1, which for this company is Apr-Jun inclusive (since it's a Mar year-end).
Revenue for Q1 is up 9.8% to £152.7m, although the load factor has fallen from 75.8% to 74.1%. Costs seem under control, and are reported as down 3.4% per seat. A table is presented on fuel hedging, showing that cheaper fuel will be coming through increasingly over the next year, further helping profit margins.
The one significant remaining legacy issue is the 7 surplus planes, which are the wrong type of plane for Flybe's routes, but Flybe is locked into expensive leases which have about 4 years left to run. The company today updates on this issue:
My opinion - I like the turnaround here, which admittedly is taking longer than anticipated to happen, but the disposal of the surplus planes referred to above could well be the catalyst for a useful re-rating of these shares. Although the market is doing a fairly good job of anticipating that outcome, with the shares already rising nicely.
Note that based on forecasts for 2016/17, the shares would be on a PER of 5, if those figures are met. The balance sheet here is very strong too. Although…
