Monday 23 April 2018

Share watch: Stobart failing to heed 'stick to the knitting' tip

Eddie Stobart truck beside the Gloucester and Sharpness Canal, UK. Photo By: Education Images/UIG via Getty Images
Eddie Stobart truck beside the Gloucester and Sharpness Canal, UK. Photo By: Education Images/UIG via Getty Images

John Lynch

Management guru Tom Peters has always been a favourite as far as this column was concerned and, some four years ago, we were mulling over one of the concepts he championed, namely 'management by walking around'.

Adapting the idea for investors, we fancied that 'investing by looking around' could be a useful and profitable pastime. So we looked around the country's motorways at the time and the standout name on the trucks zipping up and down was Eddie Stobart.

The north of England company had only been five years on the London Stock Exchange, and transport was its core. It was also involved in warehousing, biomass fuels, property, railway maintenance and Southend Airport. As an investment it had pluses and minuses, we concluded.

Now, four years later, the company had yielded more drama that we thought. There has been bloodletting at board level and two chairpersons have been removed. Revenues have plunged from £550m (€617m) to £127m with profit before tax at £10m last year, less than a third of the 2012 outcome.

Another change over the years was the hiving off of 51pc of its 'core' transport business for £280m, a decision still considered by some as debatable. The proceeds were used to pay down the debt but they have begun to climb again.

When we first looked at Stobart it was capitalised at £440m. It is now worth £550m but this move up is only since last April. So shareholders, over the last four years, have not been a happy bunch.

The company has been jazzed up and it is now referred to as an 'infrastructure and service business'. The PR department also got to work and the group now boasts Stobart Energy, Stobart Aviation, Stobart Rail and Stobart Infrastructure.

Stobart Energy is one of the better parts of the group. Revenues have jumped from £8m to £73m and, from a small loss, is now showing profit before tax of £6m, helping defray the reported £50m plus purchase price - not exactly a bargain. Stobart Aviation consists of the Aer Lingus Regional airline and Southend Airport. Last year it lost £2m on revenues of £23m. Described in a 2012 report as the "jewel in the crown", today it looks a debatable investment.

In our previous examination, the company was projecting two million passengers in 2015. The number turned out to be 900,000. Assuming the airline is washing its face, Southend is an expensive "jewel".

Stobart is in the process of offloading Aer Lingus Regional to CityJet and it will be no surprise if the sale includes some CityJet flights into Southend Airport, thus propping up a problematic investment.

The property portfolio, now rather grandiosely called Stobart Infrastructure, showed a profit last year before tax of £11m thanks to a £7m windfall from the sale of property. Stobart Rail is a bit of a misnomer, as a majority of its revenue comes from non-rail civil engineering projects. Revenue last year was £46m with railway business accounting for less than 40pc.

Its investment arm consists of its holding in Eddie Stobart and its aircraft and truck leases. It showed a profit before tax of £11m, thanks to the sales of Automotive - a car transporting company bought only four years ago - and the sale of two aeroplanes.

When summing up on the Stobart prospects four years ago, we cautioned that investors taking a punt on the stock should be careful. The same advice applies this morning - only even more so.

Stobart's dependence on the UK economy with all that's happened since the Brexit vote is unsettling and offers no reassurance.

But revisiting Stobart has left me with one abiding thought: it is an awful pity the group did not believe in Tom Peters's second piece of enduring advice - 'stick to the knitting'. In Stobart's case, it is not possible to be sure what the knitting is. Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned

Irish Independent

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