Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Dart Group-a great IHT stock although the Chief Exec needs a spell at charm school

I met the management of Dart Group recently following their half year results announcement.

Dart is an unusual combination of the low cost airline as well as the Fowler Welch-Coolchain (FWC) distribution business.

Although the Chief Executive (and principal shareholder) exuded the sort of charm normally associated with a sulky teenager one can’t question the excellent results, with pre-tax profit before exceptional items of £21.8m for the first half to 30th Sept 2006 up from £14.4m, on turnover of £198.6m from continuing operations.

I was just thankful that the FD was there to commuincate the story.

We have started to hold Dart in a number of our AIM IHT portfolios. With a market cap of c£173m it is a well established and sizeable AIM company and we like the quirky mix of the airline and distribution business.

According to the house broker the shares continue to trade at a discount to both its distribution and aviation peer groups (25% and 20% respectively) but you would expect this for a hybrid group such as this. The forward PE is also reasonable at just over 14x 2007 and 13x 2008.

The key issue in the cost base is obviously fuel which impacts both the airline and distribution business. The group hedges all its aviation fuel and is 100% hedged for 2006/2007 and 57% for 2007/2008.

Investing in AIM for IHT purposes is expanding rapidly and we think Dart is attracting a big following in this regard. The business is highly cash generative with operating cash flow c100% of operating profit. Cash flow benefits from advanced ticket sales of flights.

On some of our IHT portfolios we structure capital protection around Dart shares (and other larger AIM stocks) through a combination of going long the stock and short the CFD (using the stock to satisfy the margin on the shares). I would be happy to expand if anyone is interested.

The Chief Exec clearly needs to have a spell at charm school, having also called French air traffic controllers ‘lazy frogs’; not the wisest move when his company is reliant on these people to safely land their planes! Shareholders should hope he keeps out of the way should the group ever receive a friendly approach.


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