The regional airline group Flybe has been having a rough time recently, mainly thanks to macroeconomic factors and tough competition. Since February the share price has declined an eye-watering 25%, is this the chance for a cheap purchase or a value trap?
At first glance the numbers seem attractive, currently trading on a P/E of 7.41 and a net tangible asset value of 63.61p, whilst share currently trade at the 38p mark. However, there are problems; the high turnover of senior management and poor operating margins. 2016 saw an operating margin of 1.51%, compared to -4.02% in 2015, an improvement but still lagging behind it’s peers. Yet growth is solid in terms of number of passengers flown.
The expected financial loss this year thanks to the updates needed to I.T. systems will be a drag in the short run, but should allow for a better business model in the longer term. The main focus for Flybe is concentrating on profitability, the infrastructure is in place, with a good fleet of aircraft and solid financing capabilities, with new contracts under way – such as the Eddie Stobart deal at the start of this year, should help Flybe shift towards better margins, with the new CEO eager to exploit every opportunity for growth.
With regards to the share price, since the mkt cap is relatively small for an airline, around £88 million, large swings are a daily occurrence and nothing to be concerned about. The long term prospects for the airline industry look promising, especially for Flybe.
International Personal Finance PLC is a provider of home and digital credit to millions of customers, both in Europe and South America. With a market cap of £375 million, trading on an extremely low P/E of 5.46, there is obvious appeal.
Diving further into the numbers, IPF looks extremely attractive, a strong balance sheet and impressive income statement further the case for investing. Currently trading at the 163p mark, IPF boasts an impressive Net Tangible Asset Value of 162.76p, the income statement is also solid, with a £66.90 million profit for 2016, up from £62.50 in 2015. In terms of dividends, IPF boasts a substantial 7.63% yield, which has been growing steadily since 2008.
Despite the numbers being impressive, IPF dropped significantly, from 276p this time last year, mainly thanks to the potential regulation challenges they face in Poland, an important market for it’s lending operations. The proposed new regulatory changes as they currently stand, would have a significant effect in the near term for operating profit. Despite the past not being an indicator for the future, the track record of IPF in adapting to new regulation has been good, coupling this with the experience the Board of Directors have in the industry and strong growth in Mexico, IPF is well positioned to take advantage of the new trends in consumer credit through digital means and deliver future profits.
Recent broker ratings confirm my thoughts, with Peel Hunt reissuing an ‘add’ rating with a target price of GBX 300 and Numis Scurities Ltd reissuing a ‘buy’ rating with a GBX 344.
For a long term hold, IPF seems extremely well valued, despite the uncertainty of future potential regulation changes. Happy Investing.