What Makes Dart Group Fly?

28th Nov '19 by Jack Brumby

12 comments 3727 reads

It’s curious how companies change.

Dart (LON:DTG) - the multi-billion pound operator of the bright and bubbly Jet2 leisure travel business - started life in the 1970s as a transporter of flagrant flowers from Guernsey to the UK. Now it is perhaps better known for transporting slightly less fragrant stag parties.

The company's name is also rooted in its past: the type of plane that it first flew was a 1950s British turboprop aircraft called the Handley Page Dart Herald.

Dart’s shares have been a terrific success for many shareholders.

Over a five-year period, Dart’s share price has grown by an average of around 40% every year - and the group’s headline trading figures have kept up, with revenue more than doubling to £3.1bn and operating profit jumping from £33.2m to £222m.

What’s more, brokers continue to view Dart Group’s prospects favourably and have increased forecasts for the next two years in light of Thomas Cook’s collapse.

Despite this stellar track record, Dart Group continues to trade on an undemanding multiple of forecast earnings. Even after doubling in the past couple of months, it remains comfortably within its historic PE and dividend yield ranges.

So is there still an opportunity at 1,488p? Dart has gone from a £400m market cap company to a £2bn market cap company. How much bigger can it get?

For several reasons that I go into below, I have to conclude that Dart is not a company with an economic moat. If you disagree, leave a comment.

While there may be barriers to building up a package holiday business or a low-cost airline, the latter in particular is something of a commodity business. As Peter Lynch says, stocks of companies selling commodity-like products should come with a warning label: ‘Competition may prove hazardous to human wealth.’

However, Dart Group has proven to be an extremely competent operator. It is well-run and has enough financial strength and trading nous to continue to gain market share over the next couple of years, especially given the recent high profile bankruptcies of rivals Monarch and Thomas Cook Group.

The group’s chairman has been with the company since 1983 and has a 36% interest in the company. Its CEO came on board in…

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Edward Croft

28th Nov '19

This share has been an amazing performer. I still use it as a case study in webinars about screening & ranking. The momentum has powered on and on and on....

David Stevenson first wrote about Dart Group showing up on the Screen of Screens in the Financial Times way back in 2013 - https://www.ft.com/content/eb06ce66-79b7-11e2-b377-00144feabdc0

Well worth a read as a reminder and antidote to that bias we have against buying shares at new highs ! When David wrote about Dart - it was trading at £1.50 per share. It's now nearing £15.

rhomboid1

Excellent piece...I’ve always been too bullish on the oil price to get involved with Dart (LON:DTG) ...so doubly wrong

I’m also convinced that the Fowler Welch business has for many years put off investors looking for great capital allocators

Finally the modest dividend yield has also been a deterrent to getting aboard

Those are all excuses ...I’ve missed a great business on a reasonable rating hidden in plain sight

JOHN GASCOYNE

The piece has made me hold back from investingin JET2 and take time for more thought/research. I am also reluctant to support companies reliant on the British consumer until the effect of Brexit is more evident.

AnonymousUser192020

I bought in 5 or 6 years ago when Dart scored high in the VectorVest screens (similar concept to Stockopedia but more black-boxy) and was talked about at the London VV monthly meets. Have weighted up and down since.

Although they're seen primarily as a 'northern' operator they had a front page ad in the London Evening Standard last week as they fly from Stanstead. Also PM is renowned for his cautious outlook statements, which then get beat - makes a change from so many companies that seem to delight in disappointing. Bear in mind the generic risk applying to the biggest AIM stocks. When the AIM IHT dodge is removed there may be big selling, especially by all those dubious 'IHT avoidance' funds that seem to have crawled out of nowhere.

DAClark15a

29th Nov '19

A very interesting piece. I'm curious about a couple of the charts that you use here namely the Revenue Split and the Operating Expenses breakdown. Can you tell me where you got these, please?

Jack Brumby

These just take a bit of time to compile...

All companies are required to report by segment in the notes towards the back of their full-year accounts. There are a couple of notes that are always worth checking if you want to look deeper at a company and segmental reporting is one of them.

Again with the operating expenses, going into this level of detail requires looking at the notes to FY accounts. For Dart (LON:DTG) they were notes 6 & 7 in the 18/19 accounts (I had to aggregate some of the operating expenses for visual clarity).

Hope that helps

Yes I was aware that the information was there. I was really just wondering if that level of detail was held within Stockopedia as I couldn't find it!

Many thanks for getting back to me.

FreakNomad

Dart (LON:DTG) was able to steal a march on rivals because the North was poorly served by airlines and transport infrastructure. It could establish a regional base in Leeds and expanded out from there.

But you only get to do this once. Once the market is saturated growth opportunities will be limited. When the economy stumbles, discretionary spending on holidays will be reigned in.

MacBoyUK

30th Nov '19

Good, but expensive.

2nd Dec '19

I’ll bite... I’m playing devil’s advocate here slightly but I do also believe there is a solid case for why Dart (LON:DTG) might not be expensive even after doubling.

Dart looked almost exactly as expensive on a forecast PE basis when Ed wrote about it in 2015 at c400p - at this point if you bought and held, you would have more than trebled your money over 4-5 years. In his article, Ed writes about how it’s hard to buy at all-time highs - I think investors are faced with those same dilemmas here today.

Dart’s outlook statement and the vacuum left by the collapse of key competitors also suggests the group could benefit from positive tailwinds. When the picture is improving, brokers and the market have a habit of playing catch up in terms of properly pricing in improved prospects.

What is undeniable though is what was a £600m company is now a £2.2bn company. How big can Dart realistically get? Based on the market caps above, I think it still has space to grow although this gets harder as the company gets bigger.

RossHol

5th Dec '19

An interesting article, but the past does not give much clue to the future. I'm an accountant but I don't look at accounts. I just look at margins and return on capital in Stockopedia.

I bought 9150 shares in Dart about 15 years ago at 87p per share so have a good (unrealised) profit. I am generally averse to selling at a profit. I have no problem selling shares showing a loss.

iwright7

9th Dec '19

A interesting Dart (LON:DTG) etc multi-bagging comment from this month's Buffettology Fund newsletter:

...Only by holding for the long-term do you harness the extraordinary power of compounding. Peter Lynch used to talk about “stalking the elusive 10-bagger”. Well, we have four of those in the portfolio when comparing the first price paid with today's price: Dart Group first bought Oct-12 and now an 18-bagger; Games Workshop, Apr-11, 15-bagger; Liontrust, Nov-11, 13-bagger; and AB Dynamics, Jun-15, 11-bagger. You will never enjoy these by constantly chopping and changing a portfolio. Long Term Buy & Hold works.

What makes Dart Group fly?

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Jack Brumby

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