Small Cap Value Report (3 Feb 2014) - FLYB, SEPU, CRE, MUR, MBH, ANP

Monday, Feb 03 2014 by

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.…

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

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Sepura plc is a provider of communications solutions. The Company is engaged in the design, development and supply of digital radios, infrastructure and applications for Professional Mobile Radio (PMR) users, providing specialist solutions for the public safety, transportation, oil and gas, mining, utilities, industrial and other commercial sectors. It offers terrestrial trunked radio (TETRA), digital mobile radio (DMR), Project 25 (P25) and long-term evolution (LTE) system solutions. Under TETRA, it offers systems infrastructure, applications, hand-portable radios, covert radios, fleet management, modem and accessories, among others. Its suite of control room applications includes dispatchers, automatic person location (APL) and in-building tracking. Its DMR radio systems include DMR Tier II, which links approximately 30 repeaters; DMR Tier III, which links over 1,000 sites, and Dispatcher applications, which provide call logging and call management. more »

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

5 Comments on this Article show/hide all

cig 3rd Feb '14 1 of 5

On Flybe (LON:FLYB) it may be worth checking their lease situation, £170m sounds way too low (by an order of magnitude) for a fleet of 70 planes, even smaller regional jets and turboprops, so they must be leasing most or all of them, and if the leases are onerous to get out of, it's more effective leverage: the lessor(s) may be like a senior creditor. Still, seen as a call option it may be worth an accordingly small punt.

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iiimurray 3rd Feb '14 2 of 5

Do you have any views about IDOX that published annual results today?


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marben100 3rd Feb '14 3 of 5

In reply to post #81097


Paul has already commented on IDOX's results here:

Don't the formal R&A reveals anything especially new/important following on from the prelims of 8th Jan.


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Edward Croft 3rd Feb '14 4 of 5

Here's one that reported today that I know Paul isn't keen on, but round here we like seeing a StockRank 99/100 break out on results day - there's a lot of factors at play :-)  See RM report here:

Looking forward, the changes to the Education Technology division will, as announced, impact 2014 but create a more robust business for the future.

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BrianGeee 3rd Feb '14 5 of 5

Flybe adjusted net debt (to include lease finance) for the 2013 was £644m.
I often wonder how much difference to people's perception of a business it will make when the accounting standards change to make it appear more clearly on the balance sheet. Will it affect Stockopedia's fundamentals data? Surely it shouldn't if it's currently a fair reflection of the debt in the business?!

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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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