At first glance the business model of AIM-quoted airline and logistics company Dart (LON:DTG) looks uncomfortably exposed to the risks of flimsy margins and volatile fuel prices. Yet the Leeds based company has seen its shares take off during the past six weeks, repaying the faith of value bloggers who have long predicted a price re-rating. But as a long-anticipated correction unfolds, the question is whether Dart’s shares are buckled up for the long haul or simply a short hop.
Dart’s main business is its Jet2 airline which operates a fleet of 43 aircraft from airports in the north of England, Scotland and Northern Ireland to destinations across Europe, Turkey and the Canary Islands. It also runs a package holiday business, Jet2 Holidays, and a road logistics business, Fowler Welch. In 2012, those business delivered pre-tax profits of £18.1m, £1.8m and £2.8m respectively. The more recent interim figures recorded an overall PTP of £57.0m, up 37% on the previous year, together with cash and deposits of £206.8m (of which £98m is attributable to forward bookings).
Missed by the market
One of Dart’s attractions to value investors over the past 12 months is the fact that its shares have been trading below cash. And, despite its rising profitability (and share price), the company’s market cap of £175.5m still gives it a price-to-book of 0.93, which means that the stock is still worth less than its assets.
None of this has been overlooked by value bloggers such as Wexboy, Expecting Value, Value Stock Inquisition and Kelpie Capital, who have all cast an admiring eye over the company for over the past year. Arguably they have been doing a far better job of deconstructing the company's financials than the analysts. As you can see from the stock report, the consensus analyst estimate was being downgraded until April and has been chasing upwards ever since. The stock is covered by Cannacord, Seymour Pierce and Charles Stanley, amongst others.
Much of the debate about Dart has focused on why the stock trades at a discount and when, or if, a price correction would occur. Institutional analysts have pointed to a comparatively low free float as a reason why coverage of the company is so limited. Indeed, chairman Philip Meeson’s 39% holding has also…
