We believe FY16 marked a turning point for Stobart Group Ltd (LON:STOB), as its Energy (biomass) and Aviation (Southend Airport) businesses began to make meaningful progress on their ambitious FY19 targets. Improving returns on these drive our three-year EBITDA CAGR for Stobart Group to 25% by FY18. However, continuing upside from monetising its significant land bank is equally important. Land disposals have paid for Stobart’s dividend while its operating activities have been ramping up. With both operational and investment returns driving improving cash flow, we are optimistic about Stobart’s outlook and ascribe a fair value of £1.35 to the stock.
Transition to support services nearly complete
In FY14 the Support Services business, comprising Energy, Aviation and Rail, delivered £11m of underlying EBITDA. After Stobart invested heavily in those businesses, FY16 marked an improvement for the Support Services business units, which reported £14.8m in underlying EBITDA, accounting for nearly half of the group total. We are increasingly confident this delivery will continue and, on our analysis, believe management is well positioned to deliver on its FY19 targets of 2.5 million passengers per year at Southend Airport and 2m tonnes of biomass delivered.
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