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.

Silverjet - another poor announcement but surely this one doesn’t warrant a c27% fall in the share price (c£14m in terms of reduction in market cap)

I see that Silverjet the low cost business class only airline has announced the cessation of its charter operation, Flyjet, at the end of October.

The Flyjet acquisition provided Silverjet with its launch aircraft, under an attractive lease, together with licences enabling Silverjet to commence flights in January this year, which was sooner than originally anticipated-so it really wasn’t a bad old deal!

The charter operation (two 757 aircraft) has had its own operational issues in an increasingly competitive market. As a result the house broker’s expected profit contribution from Flyjet in the current year of £2m EBIT will now not be achieved.

Including closure costs of £0.3m and an estimated £0.4m on maintenance on the two aircraft to satisfy return conditions to the lessor, the house broker now expects Flyjet to lose c£1.5m in the current year. So they have downgraded their current year forecast by £3.5m.

It’s interesting to note that the house broker has never allowed for a contribution from Flyjet in their forecasts beyond the current year, therefore the 2009 and 2010 numbers are unchanged. So why the big deal (the shares tanked another 27% on limited trading) about a tiny part of the business that really has no bearing on the long term potential (and value) of the business.

I am in agreement with the house broker (that’s a rare occurrence) that although this is a little disappointing it doesn’t change the underlying attractions of the Silverjet business which continues to report strong passenger growth including a 76% load factor in July.

In these markets it’s tough to gauge whether today’s big fall represents a buying opportunity but -27% on the back of this relatively insignificant news is surely a bit ridiculous.


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