Interactive Investor

Dart still gaining altitude

20th November 2014 14:29

Harriet Mann from interactive investor

Tough market conditions caused Dart Group to lower full-year guidance back in June, and while the airline and holiday operator hasn't emerged scratch-free, performance improved late summer and half-year numbers were clearly better than expected. The share price, predictably, has taken off.

Group revenue jumped 15% to £902 million, driving a 10% increase in underlying operating profit to £89.4 million. Add back a compensation provision, and profit actually fell 11%. Earlier this year, subsidiary Jet2.com's claim that a technical defect is an "extraordinary circumstance", meaning compensation for delays should not be paid, was dismissed. Dart’s appeal was also rejected by the Supreme Court this month, and the company has ear-marked £17 million for compensation in this financial year.

Dart Group is made up of an airline, Jet2.com, package holiday business, Jet2holidays, and logistics service, Fowler Welch. This period's performance is largely thanks to the continuing progression of its shift to package holidays, which accounted for a third of its customers, up 21% on the number of passengers last year.

Revenue from its Jet2 businesses grew by 16% to £824 million, a 12% boost in passengers marginally under its 13% increased capacity, and despite the average ticket yield dropping almost 2%. Its distribution and logistics arm inched lower to £78.1 million, due largely to lower Royal Mail margins.

This update seemed to help restore some market confidence in the group, however, with the shares continuing to trade above the 50- and 200-day moving average (see chart). And Dart trades on just 12 times forward earnings, dropping to just 10.2 for 2016. Arden Partners analyst Chris Thomas said:

Importantly, this year also demonstrates the management's ability to quickly adapt to changes in market conditions. With the prospects for this year now more positive and with significant fuel and FX tailwinds next year, we are optimistic on the outlook and, given the modest rating, we reiterate our Buy recommendation.

And Dart remains optimistic of the full-year. "We have been encouraged by the group's underlying operating profit growth of 10%, particularly in light of the less than buoyant consumer demand and weak market pricing experienced in the early summer months," it said. "And, with winter 14/15 Leisure Travel bookings performing in line with expectations, the board is optimistic that current market expectations for full year operating profit, before adjusting for the exceptional provision of £17.0m, will be achieved."

The shares were up by 4% at 262p in early afternoon trading.