Small Cap Value Report (11 Nov 2015) - FLYB, BRAM

Wednesday, Nov 11 2015 by

Good morning!

Today is my visit to Boohoo.Com (LON:BOO) in Manchester, so I'll rattle through a few announcements here, and then run for a train from Euston. Should be an interesting visit, so of course I'll report back with my findings tomorrow.

Flybe (LON:FLYB)

Share price: 91.5p (up 2.2% today)
No. shares: 216.7m
Market cap: £198.3m

(at the time of writing I hold a long position in this share)

Interim results to 30 Sep 2015 - this is the first set of clean numbers that we've had from Flybe in a long time - i.e. with no large adjustments, or exceptional items. The airline has been dealing with big legacy problems for a while now, but seems to be emerging in better shape - with the loss-making Finnish operation now disposed of, and the surplus planes beginning to earn their keep (although it's not yet known how successful new routes will be).

Turnover rose 10.3% to £339.6m, which is for only six months remember, so it's a sizeable business.

Profit before tax rose dramatically, from a loss of £3.3m last time, to a profit of £22.9m in H1 this time. There is some seasonality, so H1 is a lot more profitable than H2. A full year profit of £5.2m is forecast by one broker.

A broker note I'm reading this morning says that the results were in line with their forecast.

It's difficult to value, as it's a turnaround situation, and next year's forecasts will benefit from reduced surplus aircraft costs, so the direction of travel for profits should be upwards.

Balance sheet - is particularly strong, with £164.8m net tangible assets, and a decent net cash position of £86.3m.

Dividends - it doesn't pay any, but is expected to rejoin the dividend list, in a modest way this year.

My opinion - the investment case is all about looking beyond the current year, and what turnaround progress might be made in future. It seems to me that this business is on the mend, but it's difficult to value at this stage.

I'm minded to hold for maybe another year, and see where things get to. I very much like the balance sheet strength - once again this company has demonstrated the point that companies with balance sheet strength have time on their side, in that problems can be fixed without worrying about solvency, or…

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Flybe Group PLC is a United Kingdom-based company. The Company is a shell company.

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Rubix Group International Limited is a United Kingdom-based supplier of industrial maintenance, repair, and overhaul (MRO) products and services. The Company is a authorized distributor for branded MRO products and its portfolio includes transmission and automation, fluid power, machining, assembly, tools and protective equipment. The Company serves various industries, such as automotive, cements and aggregates, chemicals, glass, food and beverages, power and utilities, industrial engineering, metals, recycling, pulp, paper and packaging and transport. more »

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  Is LON:FLYB fundamentally strong or weak? Find out More »

6 Comments on this Article show/hide all

Gostevie 11th Nov '15 1 of 6

Hi Paul,

I really like your new website by the way. Only just had the chance to have a proper look at it.


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janebolacha 11th Nov '15 2 of 6

Paul, good morning.

Yes, that's quite a decent set of results from Flybe, although largely volume-driven as average seat revenues declined slightly. As you note, the new routes using the E195 aircraft need to prove themselves, although they must produce some contribution which is better than their staying idle. The SAS deal (planes leased from Avation) ought also to start producing revenue. Lower fuel prices ought also to start kicking in seriously. I do hope the Flybe team, having spent so much time and effort into putting right the legacy problems they inherited, go cautiously on what the CEO calls their "chapter 4", building a strong presence in Europe. There they will really be up against the experienced big boys just about everywhere, Easyjet, Ryanair, Dart, Vueling, Air Berlin, Norwegian, etc, etc. I understand that being seen as the next page to turn but whether there's still money to be made there by Flybe is perhaps an open question.

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dangersimpson 11th Nov '15 3 of 6

Energy Technique (LON:ETQ) takeover by Volution (LON:FAN) announced today @345p:

It's basically a done deal given the 66% irrevocable undertakings. A shame really given that it only values the 34% ROCE business at 6.3x forecast earnings (by doubling HY since no brokers' forecasts are available) ex cash. But given that the company put itself up for sale when the large holders said they wanted out it was never going to get top dollar and it is a highly cyclical industry.

Book: Excellent Investing: How to Build a Winning Portfolio
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Munday 11th Nov '15 4 of 6

With the reputation from fellow travellers,
in my opinion one to avoid.

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brucepackard 11th Nov '15 5 of 6

In reply to post #111276

Thanks for the link to his website. I didn't realise that the "barge pole" list actually existed, I just thought it was meant as a figure of speech.
Agree with the ones on the list that I vaguely know about, but there are loads there that I had never heard of before.
Very useful.

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fifthcolumn 11th Nov '15 6 of 6

In reply to post #111276

Hi Gostevie,

Thanks for putting up that link.


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 Are LON:FLYB's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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