Things have been rocky over at Stobart Group (LSE: STOB) during the past few months. Its share price collapsed by more than a third since the start of October because of declining risk appetite and a slew of troubling market updates.
The support services business advised in September that “continued delays in the commissioning of third-party energy plants” at its Energy division means that results here will fall short of expectations in the “short term.” In addition, Stobart said that full-year results at its Rail division would also fall short of forecasts because of changes to the way it recognises revenue on long-term contracts.
Following on from this, the firm interims revealed that, while revenues rose 21.4% in the six months to August to £151.3m, it had slipped to an after tax loss of £17.5m. This was mainly because of the huge investment it’s making to transform London Southend Airport into a major aviation hub.
To cap things off, Stobart declared a month ago that it was planning to trim the fourth-quarter dividend to 1.5p per share, meaning a full-year dividend of 15p will be paid out in the fiscal year to February 2019, versus 16.5p in the previous period.
The company has long relied on the sale of non-core assets to fund its explosive dividends, and it has £149m worth of these entities left to get off its books. However, a recent capital review suggested to the firm that the funds created by further disposals should be used “primarily to invest in value-creating opportunities based on sustainable operating cash generation and to maintain a strong balance sheet.”
I’ve long championed the 250 company, chiefly on the back of its barnstorming dividend prospects, so this latest revelation drives a Stobart-liveried lorry through a huge part of my investment thesis.
Still a great buy
That said, I still consider the business to be a brilliant buy for long-term investors, and particularly as investment on operations at Southend blasts passenger numbers higher.
Aviation capacity is famously, and woefully, inadequate in the South East of England, and Stobart is putting itself in a prime position to capitalise on this by aggressively investing on routes. Traveller numbers at its base on the so-called Essex Riviera boomed 37% between March and August to 838,742. And with Ryanair and easyJet (LON:) boosting their operations there, passenger numbers are on course to hit the 2.5m milestone in the 2019 calendar year, before marching to 5m by 2022.
The outlook for the airport has been a little less sure of late following the travails of domestic airline Flybe. But Stobart has helped to allay concerns, buying the embattled flyer as part of a joint venture with Virgin Atlantic late last week.
Reflecting the airport’s rising star, Stobart is predicted by City analysts to flip back from a predicted 84% earnings slide this year with a 96% bottom-line surge in fiscal 2020. And this leaves the services star dealing on a bargain-basement, sub-1 PEG reading of 0.3 for the forthcoming period.
What’s more, while dividends may have been dialled down a bit more recently, payouts are expected to remain on the right side of generous and yields sit above 11% through this period. I think Stobart could make you a fortune by the time you come to retire and it remains a hot buy for me.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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