Menzies (John) (MNZS)


Plane profits plunge at John Menzies

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Plane profits plunge at John Menzies
Turbulence at its aviation business wiped out over a quarter of John Menzies' (MNZS) market value on Wednesday, driving shares in the newspaper distributor to new four-year lows. It's forced the company to warn on full-year profits both for this year and next, yet however uncomfortable it might be for new chief executive Jeremy Stafford, it is hardly unfamiliar territory.

Stafford has been in the job less than five weeks and already has one profit warning under his belt. But a year ago he was running the UK business at outsourcing giant Serco. It was on his watch that the company became embroiled in the prison tagging scandal which led to a string of damaging profit warnings.

Of course, Scotland-based John Menzies problems are very different. It runs a ground handling services business for passenger and cargo planes, and blames its warning on contract losses in Colombia, poor cargo returns in Australia where it relied too heavily on lower yielding shipments, and changes at Heathrow which have hit margins.

Aviation's overall performance has been mixed since July with revenues on a constant currency basis up 8%, cargo handling tonnes were up 8% and absolute ground handling turns up 15%. Menzies also saw contract wins in North America and Canada.

"Overall, as a result of the above issues, the full year outturn for Aviation will be materially below board expectations and they will also impact the following year," admitted Menzies.

But at least the news distribution division has been performing well, with overall sales better-than-expected and a cost reduction programme going to plan.

However, N+1 Singer has cut pre-tax profit guidance for this year by 10% to £43.1 million, led by a £5 million downgrade aviation profits, giving earnings per share of 47.7p.

The broker said: "This is particularly disappointing as it takes place at a time when progress in North America is positive and outsourcing appears to be accelerating."

At 349p, Menzies trades on a little either side of seven times earnings both for this year and 2015, which, barring further hiccups, looks undemanding. Numis Securities certainly thinks so:

"Following a period of operational and managerial disruption, we believe the business is entering a period of transition as it re-groups and the new management team develops its strategy to maximise the opportunity in the Aviation market. We would expect further announcements early in 2015 as the next potential catalyst to drive a re-rating. In the meantime, we believe a c.8-10x PE on depressed earnings is a potential trading range in the short term. We lower our target price to 450p from 761p and maintain our 'add' rating following the share price fall."

With the poor performance at its UK aviation business likely to be felt into next year, Menzies new CEO will need to prove that he has what it takes for a turnaround - and quickly.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.


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