Air Partner’s strong start to the year has continued. All parts of the group have performed well. Management anticipates H1 PBT of not less than £4.0m, which would be a 33% increase YoY. As ever, visibility for the broking divisions remains limited, although the Consulting & Training division has an encouraging pipeline for H2. We are leaving our FY forecasts unchanged, although the strong H1 performance does leave our estimates well underpinned. Our recommendation remains BUY with a 140p target price based on our DCF valuation.
A strong performance across the board
The strong start to Air Partner’s year has continued. All parts of the group have performed well.
Commercial Jets has continued to secure a number of good contracts, including pre-season football tour work, car launches and European tour operator flying. The remarketing business (formerly known as Cabot Aviation) has also started the year well with a number of transactions (including selling Boeing 747-400s for Air China and Boeing 737s for Kenya Airways). It has also been appointed as exclusive remarketing agent to Saudi Arabian Airlines for a fleet of 15 Boeing 777s.
Private Jets has seen continued growth in JetCard renewals and utilisation. The UK remains strong, while activity in the US is benefitting from past staff recruitment. However, Mainland Europe remains a challenge.
Freight has seen a strong H1, albeit against a weak comparative. The blockade of Qatar by several of its neighbours has created new opportunities for air freight to bypass surface transport alternatives that are now closed.
The Consulting and Training division has secured an attractive pipeline of business to be executed in H2. There has been evidence of cross-selling of air charter services to existing Baines Simmons clients, plus some expansion of the crew fatigue risk management work of Clockwork beyond aviation.
Forecasts unchanged, but well underpinned
Management anticipates H1 PBT of not less than £4.0m. This level would imply 33% profit growth against last year’s £3.0m. Although the strong start to the year is encouraging, with a broad-based performance across the group, we are mindful that last year also saw a similarly strong start to the year in H1 that slowed to a relatively flat performance in H2, the seasonally weaker half. Consequently, we believe it is appropriate to leave our forecasts unchanged, while acknowledging that they appear to be well underpinned.
Encouraging progress, attractive valuation
Air Partner’s shares have performed strongly (+56% over the past year) but we still see the shares as undervalued. In our view, a January 2018E P/E of 16.3x, dividend yield of 4.1% and equity free cash flow yield of 7.4% do not adequately reflect the group’s short-term performance (24% EPS growth forecast this year, 9% per annum for 2019E and 2020E), with the balance of risks to estimates on the upside. Nor does the valuation reflect the potential for the group to continue to reposition itself in favour of a greater contribution from more stable aviation safety consulting activities. The group is already benefitting from the improved visibility offered by these activities, with cross-selling benefits also beginning to be realised. Our recommendation remains BUY with a 140p target price, based on our DCF valuation.