Good morning!
Flybe (LON:FLYB)
This is an interesting turnaround situation, although the Balance Sheet is not good, so it should be seen as high risk. Most of their cash is restricted, which from memory relates to deposits required by the debit/credit card merchant processing banks. There is also rather a lot of bank debt, although that is just to finance aircraft - the 2012/13 Annual Report shows in note 15 that of fixed assets totalling £165.4m, £140.4m relates to aircraft. Therefore the most recently reported net debt of £34m (at 30 Sep 2013) isn't too bad at all really, although the £45.1m restricted cash refered to above is included within that, so net debt rises to £79.1m if you adjust for that.
Net tangible assets was last reported at £36.9m, so at least that's positive. The current assets:current liabilities ratio is weak, at 72.5%, but if you take into account that, in common with nearly all travel companies, the business is funded through up-front deposits paid by customers, then a weak liquidity position can just keep rolling indefinitely - providing the aircraft can continue flying. The nightmare scenario for airlines is if there is an extended suspension of flying, e.g. if Iceland's dust cloud happens again, in which case they would be at the mercy of the goodwill of the bank manager as cash deposits unwound with no associated revenues coming in.
As you can see from the two year chart below, Flybe shares have been strong performers recently, this is on the back of new management (who have previous experience at EasyJet apparently) doing drastic cost-cutting in order to restore profitability.
Although it's higher risk than I usually consider, and this sector can be a nightmare for investors, someone persuaded me to take a small punt on these shares recently at 103p (Tweeted at the time). This morning's Q3 trading statement sounds pretty encouraging - which they say was in line with overall management expecations. They (i.e. management) seem to have stripped out an awful lot of costs, including 450 staff.
At about 105p per share the market cap is £79m, which looks low for a business that is forecast to deliver turnover of £619m this year (to 31 Mar 2014) and £503m next year, moving back into profit.…
