Dart Group: A second bite of the cherry?

A unique and well-managed business, Dart's recent rally has unwound in equally spectacular style. Graeme Evans asks whether this is a fresh buying opportunity.

A buoyant summer of trading and share price records faded from view at AIM-listed Dart today as fears of a no-deal Brexit and rising fuel prices took hold at  the owner of Jet2.com and Jet2holidays.

While shares in West Yorkshire-based Dart have been on a stunning run in 2018, they could not resist a 15% slide today as cautious comments in half-year results combined with a dreadful session for transport stocks. Heightened Brexit fears meant easyJet fell 6%, Ryanair dropped 5%, British Airways owner IAG slipped 3% and Thomas Cook eased 4%.

Higher fuel costs have also impacted sentiment, with Dart referring to a number of other emerging headwinds, including the cost of retaining and attracting staff.

The company added:

"This, coupled with the overall uncertain UK economic outlook particularly related to Brexit and how it may impact on consumer spending, means we remain unclear how demand will develop in the medium term."

Source: TradingView (*)      Past performance is not a guide to future performance

It also warned of increased losses in the quieter second half period as the company continues to invest in additional aircraft and marketing. This follows a summer in which operating profits jumped by 68% to £350.1 million.

Dart enjoyed a particularly strong peak season, with demand for both its flight-only offering Jet2.com and its higher margin package holiday product Jet2holidays buoyant throughout.

While winter bookings are also in line with expectations, Canaccord Genuity analyst Gert Zonneveld said it was prudent to cut his profit forecasts for the next two financial years to reflect caution on costs and holiday prices.

He still has a price target of 1,250p, which would represent a new record high and is based on an average historic earnings multiple of 13x. Our own companies analyst Richard Beddard is also a fan of the stock, having recently scored Dart at 7/10 based on his valuation criteria.

Earlier this year, Dart shares breached the £10 barrier for the first time, up from 673p at the start of the year. This was aided by the collapse of Monarch removing capacity from the market and easing pressure on prices.

Jet2holidays took 2.31 million customers on package holidays in the six months to September 30, an increase of 28% on a year earlier. Jet2.com flew 8.93 million flight-only and package holiday passengers, up 25% and slightly ahead of the 24% seat capacity increase. As a result, average load factors improved by 1.2 percentage points to 94.4%.

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Dart also owns distribution business Fowler Welch, which is one of the UK’s leading providers of food supply-chain services. Its revenues grew 7% to £88.9 million in the period due to new business wins, although operating profits were slightly lower at £2.3 million.

The Dart company dates back to 1971 with the launch of Carpenter's Air Services to fly flowers from Guernsey. It moved onto the stock market in 1991, when it took the Dart name from the Rolls-Royce engines used to power its planes.

Current executive chairman Philip Meeson, a five-time British aerobatics champion, has been involved with the business since 1983 and oversaw the launch of the Jet2.com low-cost airline brand in 2002.

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.