Stobart Group remains on course, latest market update reveals

Stobart Group said it continues to make strong commercial progress in its core aviation and energy operating divisions and is trading in line with management expectatons.

The Cumbria-based business was updating the market today in a pre-close statement ahead of announcing its full year results for the year to February 28, on May 15.

Its aviation arm said its London Southend Airport operation saw a 33% increase in passenger numbers to 1.5m in the financial year 2019, up from 1.12m in 2018.

Preparations are well under way to welcome Ryanair, who will base three aircraft at the airport from April.

The airport was also pleased to announce recently that Loganair will be launching flights to Glasgow and Aberdeen from May 2019, and to Carlisle Lake District Airport, owned by the group, in July, supporting further passenger growth.

On February 22, Stobart Group confirmed it had disposed of its regional airline and aircraft leasing businesses in return for becoming a 30% shareholder, alongside Virgin Atlantic and Cyrus Capital, in a newly-created private vehicle, Connect Airways, which successfully bid for the Flybe business.

Stobart Group recognised a profit on disposal, on an accounting basis.

The energy division said all but three of the power plants in the UK and Ireland that Stobart Energy supply to have completed the commissioning phase and are now in full contractual operations, meaning the owners of those are confident that the plants are at a level where it can perform consistently.

This improvement has helped Stobart Energy to deliver 1.3 million tonnes of renewable fuel, representing an increase of more than 45% on the previous year.

This improvement was achieved despite continued challenges with underperforming power plants during their commissioning period.

As a result of these challenges, Stobart Energy will continue to carry non-underlying pre-contract costs until the plants all reach the end of their commissioning periods.

Therefore, Stobart Energy is seeking to negotiate compensation packages with the various plant owners.

The rails & civils company reported at the time of its interim results that it had seen a material reduction in profitability against management’s expectations.

This reduction followed a review of ongoing contracts that were substantially completed in prior periods, resulting in a downgrade in the recorded performance of those contracts.

Following the conclusion of the review, Stobart Rail & Civils strengthened the management team and has put in place a more disciplined approach to contract quality, focusing on securing contracts with external tier-one customers.

This process is generating improved results in terms of new business. This year the team has worked on the Newton Heath Maintenance Building Project for Northern Rail and recently signed a significant new contract with Nexus, the Tyne and Wear Passenger Transport Executive.

At the time of the publication of Stobart Group’s interim results to August 31, 2018 on October 24, 2018, the company announced its intention to undertake a capital review. Further details of the review were announced on December 3, 2018.

Stobart Group continues to review its capital requirements.

It said the objective is to ensure that the company can accelerate and deliver its ambitious plans to fund future growth and shareholder returns from operating cashflow on a sustainable basis.

The majority of the group’s planned investment will be deployed at London Southend Airport to put in place the infrastructure required to serve up to 10 million passengers per year.

The company continues to evaluate both the quantum of the investment required and the opportunities to fund growth through the disposal of non-core assets.

To that end, Stobart Group has recently increased its available cash resources to support its growth plans through asset sales and the placement of shares on January 11, 2019, with Cyrus Capital, generating £24.7m, following the announcement of the recommended cash offer for Flybe plc.

In light of the current assessment of the group’s investment requirements and cash flow, the board believes it would be more appropriate to move to a twice-yearly dividend made in equal payments of 3p per share.

The first payment of 3p per share is expected to be paid in July 2019.