Small Cap Value Report (3 Nov 2014) - DTG, CBUY

Monday, Nov 03 2014 by

Good morning!

Dart (LON:DTG)

Share price: 230p
No. shares: 146.4m
Market Cap: £336.7m

Legal judgment - Shares in Dart have dropped about 30p today to 230p. This is the airline, package holidays, and also owns a road haulage business. The reason for the fall is that the Supreme Court has ruled that cannot appeal against an unfavourable judgment which will result in the company having to pay higher levels of compensation to customers whose flights were delayed in certain circumstances.

The contentious issue concerned whether technical breakdowns should be regarded as "exatrordinary", or as part of the normal  course of events, and therefore trigger compensation payments to customers or not.

Dart says that it will make a £17m provision to cover historic claims, and the future cost is expected to be between £3-5m p.a.. So that's distinctly unhelpful, and in the context of profit of about £36m last year, it's probably going to put a noticeable dent in future profitability. On the other hand, airlines are benefiting from the lower price of fuel at the moment (to the extent that they haven't hedged), and this legal risk was a known factor that has been grumbling away for some time.

My opinion - the market tends to take issues like this in its stride. Forecasts will be adjusted, the share price has already adjusted down, so the only risk now is whether claims volumes (and the cost of handing them) might exceed estimates. Personally I doubt there will be a huge issue here - how many people are going to bother going through all the hassle of claiming a relatively small amount of compensation for a flight that was delayed more than (say) a year ago? I wouldn't bother - would you?

The company's track record in recent years has been good;


Ryanair Holdings (LON:RYA) - It's worth noting that Ryanair has put out a positive trading statement today, noting that unit costs fell 2% due to cheaper fuel (excluding fuel costs rose by 3%, so that's a big impact from cheaper fuel).

Note that they are locking in current oil prices by increasing hedging, time will tell if that was the right or wrong decision;

We have taken advantage of recent oil price weakness to extend our fuel hedges to 90% for FY16, at approx. $93…

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Dart Group PLC is a leisure travel and distribution, and logistics company. The Company is engaged in the provision of air travel organizer licensing (ATOL) licensed package holidays by its tour operator, Jet2holidays Limited, and scheduled leisure flights by its airline, Limited ( It distributes temperature-controlled and ambient products on behalf of retailers, processors, growers and importers in the United Kingdom. It operates through two segments: Leisure Travel, and Distribution & Logistics. The Leisure Travel business focuses on scheduled leisure flights by to holiday destinations in the Mediterranean, the Canary Islands and to European Leisure Cities. The Distribution & Logistics business includes the operations of Fowler Welch-Coolchain Limited, a distribution and logistics services provider. Its temperature-controlled operations are in Spalding in Lincolnshire, Teynham and Paddock Wood in Kent, and Hilsea near Portsmouth. more »

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cloudBuy plc is a provider of an integrated software platform for e-procurement and e-commerce for the trading of goods and services between purchasers, such as public sector bodies and their suppliers, along with the analysis and coding of spend and product data. The Company's operating segments include Company Formation Services, Web and ecommerce services and Coding International Limited. It also provides services to new businesses, including incorporation, company secretary services and filing annual returns, using its software platform. Its solutions include e-commerce Marketplaces, e-commerce Websites, Purchasing Portals, SpendInsight and Company formations. SpendInsight service provides regular analysis of any company's historical spend data. It offers a range of Website packages from templated solutions to Intranets and global business-to-business (B2B) e-commerce sites. The cloudBuy platform enables rapid extension of its solutions and development of new applications. more »

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

16 Comments on this Article show/hide all

Kevincos 3rd Nov '14 1 of 16

Surely it is the UK Supreme Court ruling - not the US Supreme Court ruling in this case ...

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Paul Scott 3rd Nov '14 2 of 16

In reply to post #87401

Hi Kevincos,

Thanks - why did I assume it was the US Supreme Court? That was a bit daft of me!!
I've taken out the reference to US, and have emailed the press office of the company to clarify which Court it is (UK, European, or US), but as you say logically it is likely to be a UK court, but for some reason I had it lodged in my head that it was a US court? Isn't the plaintiff a US citizen I vaguely recall??

I'm come back with clarification as soon as I have it.

Regards, Paul.

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cojode 3rd Nov '14 3 of 16

Hi Paul
Did you do a Sunday night podcast yesterday? Can't find any reference to it.

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Paul Scott 3rd Nov '14 4 of 16

In reply to post #87404

Hi cojode,

No I was away for a friend's wedding this weekend, so didn't do a Sunday night audiocast.
I'll probably do them fortnightly.

Regards, Paul.

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melody9999 3rd Nov '14 5 of 16

looking forward to the next podcast Paul - really interesting and certainly relieves some boredom whilst I am driving!

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OsullivanB 3rd Nov '14 6 of 16

The plaintiff came from Stockport and sued Jet2 over a delayed flight from Malaga to Manchester. All the litigation was in England.

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narp 3rd Nov '14 7 of 16

Re Dart,

I presume the claims would be too small for the PPI firms to latch onto.

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rmillaree 3rd Nov '14 8 of 16

Ref Airline compensation
Looks like a nice little Niche for Quindell to branch out into securing £50 cash and £4.25 meal vouchers compo for passengers and charging the Airlines £3,250 for their fees for doing the processing of the claim.

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martinthebrave 3rd Nov '14 9 of 16

Hi Paul,

What is your view of this afternoons announcement that Plastics Capital has conditionally agreed to acquire Flexipol for a maximum consideration of £10.64 million?

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ACounsell 3rd Nov '14 10 of 16

Hi Paul,

I wish I shared your optimism on the likelihood of people pursuing compensation - for you and me it might not be worthwhile but plenty of people will see an opportunity for free cash! As rmillaree noted in a previous post a useful income stream for the likes of Quindell! More importantly the litigation lawyers will be all over this like a rash and we can expect a flood of unsolicited phone calls from the 'ambulance chasers' saying that you are due compensation for this or that flight that you may or may not have taken. Think PPI, Industrial Deafness, Industrial Accident, etc., the list goes on.

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Paul Scott 3rd Nov '14 11 of 16

In reply to post #87414

Hi ACounsell,

There are already ambulance-chasing companies with websites encouraging people to put in claims to airlines. Although the amounts are small - e.g. one I found said that their "results so far" are winning 6,300 cases, for £2.3m. So that averages £365 per claim, which probably isn't enough to excite any of the larger ambulance-chasing companies perhaps?

So definitely a cost, but arguably just offsetting some of the benefit from lower oil prices?

Regards, Paul.

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Mechanical Bull 3rd Nov '14 12 of 16

The rejection of Dart's appeal on this ruling shouldn't have come as a surprise to anyone. What does surprise me is that both Easyjet and Flybe are up strongly today. Surely, this ruling applies to all airlines?

Blog: Mechanical Bull Blog
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purpleski 3rd Nov '14 13 of 16

In reply to post #87419


Yes this surprised me as well and as holder of I am hoping that this Mr Market over reacting. That said I am only down £42.00 but if I hadn't been on holiday last week I would have probably got out last week when i was up a £1k.

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cig 3rd Nov '14 14 of 16

In reply to post #87419

US airlines are up today too, and probably not because of that ruling.

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nigelpm 3rd Nov '14 15 of 16

More on the story here :

My gut feel says this will hurt DTG very hard.

PS - this isn't ambulance chasing - there's a very clear law in place to compensate passengers for delayed flights.

It's the airlines insistence that they could get away with not paying that's brought it to court and made it worse for them.

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valueman 4th Nov '14 16 of 16

I tend to agree that the compensation costs should be relatively small compared to the annual profits which ,if the oil price remains as it is ,should save Dart tens of millions 2015/16. if you consider the airline T/O at £750m and costs are roughly 90% of sales and fuel is 50% of those costs then every 1% fall in fuel costs saves them over £3m -and fuel must be down over 10% already which leads me to think profits could almost double ..Shame they bought forward all 2014/15 months back !

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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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