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Flybe update could be a buy signal

By Gary Newman | Saturday 4 April 2015


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


Airline Flybe (FLYB) can probably count itself as unlucky that its cautious approach has contributed to the calamitous drop in its share price. At a time when some other airlines have been performing very well as a result of significantly lower fuel costs, Flybe has been unable to take advantage of that having hedged significant amounts of its jet fuel through into 2016 at much higher levels than the current price.

Its last trading update in January caused the share price to almost half to its current, stable level of around 58p, and with another trading update due on Tuesday investors will be hoping for some better news, and certainly no nasty unexpected surprises.

There was little to cheers up investors during 2014, even ignoring the fuel hedges, as although passenger revenue per seat was up by 2.4% in Q3, up to the end of December, overall passenger revenue was down by 3.8% compared to the same quarter in 2013. In terms of the forward bookings for the quarter which Tuesday’s update covers, sales were slightly ahead of expectations at 36% of seats sold, but revenue per seat was expected to be down by around 3%.

One positive from 2014 though was the removal of nearly $1 billion worth of future liabilities relating to the legacy order for Embraer E175 planes, and the cost per annum for the Embraer E195 planes is to be capped at £26 million.

It was also looking to offload its loss-making 60% share in the Flybe Finland business, and successfully completed the disposal of it to Finnair last week. The last set of accounts were a while back, but as at the end of September 2014 it had just under £150 million in free cash and was meeting its debt repayment and lease obligations. 

It is still too early to tell if the changes being implemented by the directors are going to have the desired effect in terms of revenue, and returning the company to longterm profitability, but so far everything seems to be going to plan and the Finland disposal was a step in the right direction, although short term it had a negative impact on the balance sheet. 

If Tuesday’s update includes signs of further progress and no unexpected bad news, then I would be very tempted to buy at around the current share price, but it will have to be for a longer term investment in the shares as the company isn’t going to turn around overnight. 

For anyone looking for a quick trade, you might also get an opportunity on the day if a positive update attracts buyers and renewed interest in the company. 


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Comments

2 comments

  1. Yes, I have I followed Flybe closely and the other week, but and sold within 48 hrs for a few hundred. Reason I sold was, I missed the bit about the shares being shorted – this only came into play a few weeks ago and a few days after I bought. I still watch but holding back as I expect a market correction very soon and the shorting concerns me.

  2. Revised post, hopes it makes a bit more sense.

    I have followed Flybe for a few months, almost bought above one pound, and was lucky enough not too as the shares dived a couple of months ago.

    I did buy a few weeks back, but I missed the fact the shares were now shorted and the shorting started a couple of days before I bought. When I realised that, I took the first opportunity to take a small profit of a few hundred pounds.

    I still keep an eye on these shares, but the recent shorting stance by GSA Capital Partners LLP does worry me a lot and therefore will stay out of Flybe until a new pattern emerges.


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