Results: Good performance in Aviation and Energy
We see considerable value in Stobart’s main divisions, Aviation and Energy, as we feel they have good structural growth prospects. Both divisions performed well in H1, partly offset by a weaker performance at Rail & Civils. In H119, Stobart reported an increase in underlying EBITDA from £15.4m to £17.0m, excluding the £123.8m profit made from the sale of a stake in ESL in April 2017 (Exhibit 1).
Exhibit 1: H1 results comparison
£m |
H118 |
H119 |
Change (%) |
Revenue |
124.6 |
151.3 |
21% |
Underlying EBITDA |
139.2 |
17.0 |
(88%) |
Underlying EBITDA |
15.4 |
17.0 |
10% |
Underlying profit before tax |
122.2 |
(8.8) |
N/A |
Underlying EPS (p) |
35.0 |
1.9 |
(95%) |
Underlying DPS (p) |
7.5 |
9.0 |
20% |
Exhibit 2: Divisional revenue comparison
£m |
H118 |
H119 |
Change (%) |
Energy |
25.3 |
29.9 |
18% |
Aviation |
82.4 |
87.1 |
6% |
Rail & Civils |
20.2 |
22.6 |
12% |
Investments |
- |
2.0 |
N/A |
Infrastructure |
1.9 |
1.1 |
(43%) |
Eliminations |
(11.7) |
(7.1) |
N/A |
Underlying total |
118.0 |
135.6 |
15% |
Effect of UKFFO* |
6.6 |
15.7 |
140% |
Reported total |
124.6 |
151.3 |
21% |
Source: Stobart Group. Note: *The financial effect of the accelerated investment in growth at LSA, through the UK Flybe franchise operations.
Exhibit 3: Divisional underlying EBITDA comparison
£m |
H118 |
H119 |
Change (%) |
Energy |
4.6 |
8.7 |
89% |
Aviation |
13.7 |
15.7 |
15% |
Rail & Civils |
1.4 |
(4.8) |
(450%) |
Investments |
0.8 |
2.8 |
261% |
Infrastructure |
0.5 |
(1.1) |
(307%) |
Central function and eliminations |
(5.5) |
(4.3) |
(22%) |
Underlying sub-total |
15.4 |
17.0 |
10% |
Profit on disposal of investment in ESL |
123.8 |
- |
(100%) |
Underlying total |
139.2 |
17.0 |
(88%) |
Aviation shows strong growth at LSA
Aviation saw underlying EBITDA increase from £13.6m to £15.7m, boosted by strong growth in both passenger numbers and underlying EBITDA per passenger at LSA. Passenger numbers at LSA rose by 37% from 610,492 to 838,742. easyJet, the main airline customer at LSA, has decided to base a fourth aircraft at the airport which should lead to over 1m easyJet passengers in 2018. Stobart has also signed a five-year agreement with Ryanair to base three aircraft at LSA, which will add 1m passengers annually from summer 2019. Including agreements with Air Malta and Adria Airways, LSA expects to handle around 2.5m passengers in 2019, with expansion plans underway for 5m passengers.
Underlying EBITDA per passenger at LSA rose by 87%, from £1.74 to £3.26 and the results presentation conveyed a clear sense that this figure could rise further, particularly as more retail space is opened and the cost per passenger fell as airport capacity is better utilised. LSA’s development of retail space should be enhanced by the agreement it has signed with The Restaurant Group to introduce six new food and beverage brands at the airport, with Giraffe STOP and Costa Coffee already opened under this agreement. It also expects to open a new bespoke pub, The Navigator, later this year. The Holiday Inn had over 90% occupancy.
The presentation included a video presentation on LSA and one of the main points we thought interesting was how quickly passengers transit through the airport, from rail/car arrival to plane boarding, which we think should be a competitive advantage compared to the other more congested London airports. The Civil Aviation Authority recently rated LSA the most accessible airport in London and the South East.
Aviation’s three smaller businesses also showed a good performance. Stobart Jet Centre has already exceeded the volume of business seen in the whole of 2017 as capacity increased and it attracted more international customers. Stobart Air saw a 17% increase in passengers from 0.9m to 1.1m, while revenue per passenger also increased. The UK Flybe franchise operation (UKFFO), for which tickets went on sale in December 2016, commenced flights in May 2017 but is being withdrawn following the agreements with EasyJet and Ryanair to expand their operations at LSA. Stobart Aviation Services won its first external contract at London Stansted with easyJet.
Energy reported a 72% rise in underlying EBITDA
Stobart Energy is the UK’s leading provider of biomass. The division reported an increase in underlying EBITDA from £4.6m to £8.7m. The results benefitted from a 72% rise in tonnes sold from 382,775 to 657,950, due mainly to plants in commissioning last year coming on line. Underlying EBITDA per tonne rose by 10% from £12.01 to £13.19 led by customer mix, the benefits of increased volume and cost management, and is running ahead of management’s strategic target of £12. We would expect further increases in underlying EBITDA per tonne as utilisation increases and more third-party power stations come on-line.
Rail & Civils – loss in H1 but on the turn
Divisional underlying EBITDA swung from £1.4m to a loss of £4.8m. Management had been strengthened, including a new finance director, and a review of ongoing contracts led to a reduction in their forecast outturn, with a more prudent accounting policy in terms of revenue recognition. The management team is placing more focus on contract quality and securing contracts with external tier one customers. Management states that an improvement in the division’s performance has already commenced and should strengthen into next year. The division has also secured two framework agreements with Manchester’s Metrolink and achieved delivery partner status for Transpire, the Trans Pennine route upgrade.
Infrastructure reported a small loss of £1.1m after a small profit of £0.5m. The loss was due to Carlisle Lake District airport being closed for development work. During the period the Carlisle office and Widnes properties were disposed of at book value or above.
In H118, the underlying EBITDA was £124.6m, which included £123.8m for the sale of the stake in ESL in April 2017 and £0.8m, which was mainly the dividend from ESL and payment for use of the Stobart brand name by ESL. The underlying EBITDA in H119 was £2.8m.
