Summary
With Flybe (LON:FLYB) share price flying low at 54p I've decided to take a closer look at whether it is worth investing in this budget airline. Paul Scott is also long on this share and his comments are definitely worth reading too.
This is a turnaround business. In particular they are trying to stop losing money on their remaining Ejets and once cheaper fuel flows through this should improve the profitability. It has revenues of £600m yet the market cap is only £117m. Even if they improved the profit margin to 5% this would mean the shares are trading on a theoretical P/E of around 4/5. By comparison easyJet (LON:EZJ) has an operating margin of near 15% (although it has a better established brand). At the moment broker estimates are for 2.5p EPS for 15/16 (year-end reports in June) although much higher than this for 16/17 onwards.
However, the turnaround is taking longer than expected and my worry is that it might only start to become more profitable just as the economy starts to slow. Looking quickly at online price comparison websites it doesn’t seem to be particularly competitive on some London routes with Easyjet and Ryanair much cheaper, but better priced from non-London airports such as Manchester. (That said, they claim that 80% of their routes have no competition from another airline so I may be looking at their less profitable routes).
I am also concerned by its poor passenger load of around 70%, despite the fact that the economy is doing OK. So I am sitting on the fence with this one a little bit and might wait until the price is even lower and/or the 15/16 results are published in June.
Some questions I am struggling to find the answers to (and which I would welcome responses) are:
- It's NAV per share is currently higher than the share price. But is it right to use that figure at face value? If you strip out the cash and assets then what P/E are you left with on expectations for the last year (15/16) of around 2.5p per share? I have no previous experience of investing in an airline so I don't know how to value it. I note Paul Scott says the balance sheet is good.
- Who is the average passenger? I thought I read somewhere that they…
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