Contracts, financial close and momentum
Stobart Group Ltd (LONDON:STOB) has delivered a series of contract wins and these along with strategic moves over the year, provide momentum towards its medium-term targets across the core growth divisions. With financial close achieved on the proposed biomass plant at Stobart’s Widnes site and two subsequent biomass supply deals secured, the group is on track to achieve its 2m tonnes pa run rate by 2017. In Aviation, passenger volumes have increased again at London Southend, up 9% to 1.09m, slightly below our forecast. Some rebalancing of current routes is expected and negotiations remain ongoing with other airlines. Any further deal would be transformational. With other divisions performing as expected, we feel that Stobart is well positioned to work towards its medium-term targets, although progress may be uneven.
Pre-close statement: Progress with contracts
Stobart’s pre-close summarised progress: several long-term contracts were announced in the Energy division to supply a total of c 750k tonnes pa of biomass from 2017 which combined with existing contracts provides visibility on over 85% of target biomass volumes. Aviation continues its growth with passenger numbers at Southend up 9%, a slowdown from H1 as flagged, a trend which is likely to continue into H116 until new airline contracts are finalised. The remaining divisions delivered to plan with external rail revenues increased, £26.4m of cash released from property sales and the group’s investments performing well.
Clear strategy to drive profit across the group
Stobart has a clear vision to drive profitability and drive value for shareholders through increasing volumes in its chosen markets. Targets have been set in two key markets: Biomass – seeking to deliver 2m tonnes pa through a largely domestic, long-term contracting structure; and Air – aiming to secure passenger throughput of 2m passengers pa at London Southend. The other divisions are run either to support these or release value from investment and subsequent disposals.
Valuation: On a journey to reflect stored potential
We believe that as Stobart demonstrates success and profitable growth in its target markets, the discount to our fair value could reduce and begin to reflect better the stored value. While the success of Biomass in securing contracts provides confidence, further catalysts such as securing additional airlines would be a positive in Aviation. As demonstrated by the partial sale of T&D, value within the group structure only truly becomes apparent when a transaction is concluded.
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