Sto­bart has at­trac­tive div­i­dends and plenty of growth

The firm has is­sues with its biomass en­ergy di­vi­sion but that looks tem­po­rary

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If you’re in­ter­ested in a prof­itable com­pany pay­ing a de­cent div­i­dend, take a look at Sto­bart (STOB).

The di­ver­si­fied in­fra­struc­ture, en­ergy and avi­a­tion busi­ness be­lieves it has plenty of av­enues for growth, mean­ing its re­cent share price rally may have much fur­ther to go.

War­wick Brady, who took over from founder and ma­jor share­holder An­drew Tin­kler as chief ex­ec­u­tive in June, has am­bi­tious hopes for the com­pany.

He wants to turn it into a £2bn mar­ket cap busi­ness by 2022. It’s cur­rently worth just shy of £1bn. Rev­enue is fore­cast to jump from £129.4m in the year to Fe­bru­ary 2017, to hit £265.5m in 2018 and £354.9m in 2019.

HOP­ING TO FLY HIGH

Sto­bart has many di­vi­sions but it is Brady’s back­ground as chief op­er­at­ing of­fi­cer of EasyJet (EZJ) that sug­gests where a good chunk of growth will be gen­er­ated. Sto­bart owns and runs Southend air­port and Brady be­lieves it could be­come a ma­jor Lon­don trans­port hub.

The com­pany has al­ready in­creased pas­sen­ger num­bers by 25% in the first half of the year to 610,000 cus­tomers and is look­ing to boost that fig­ure to 5m by 2022.

It has also in­vested £2.6m on set-up and mar­ket­ing costs for 11 new Flybe (FLYB) routes launched in May and the air­line along with EasyJet has com­mit­ted to bas­ing a fur­ther three planes at the air­port.

This could add an ad­di­tional 520,000 pas­sen­gers per year and the com­pany is in dis­cus­sions with other air­lines to in­crease ca­pac­ity over the next two years.

Cenkos an­a­lyst Sandy Chen says: ‘We ex­pect that Southend’s top cus­tomer sat­is­fac­tion rat­ings and peak time slot avail­abil­ity will con­tinue to at­tract more air­craft/route al­lo­ca­tions.’

GOOD­BYE DEBT, HELLO DIV­I­DENDS

Sto­bart’s re­cent £124m sale of part of its stake in truck­ing com­pany Ed­die Sto­bart Lo­gis­tics (ESL:AIM) has helped to clear its debts. Net debt stood at £121m last year, it now has a net cash po­si­tion of £2.9m. It re­tains 12.5% of ESL worth around £70m.

This stronger bal­ance sheet should mean more cash in share­hold­ers’ pock­ets in the form of div­i­dends. In­vest­ment bank Stifel fore­cast 18p per share this fi­nan­cial year, equal to a 6.2% yield on the lat­est share price of 288.5p.

Stifel ex­pects the div­i­dend to go up to 18.5p in 2019 and 19.1p in 2020.

The com­pany re­cently had some set­backs with it biomass en­ergy di­vi­sion due to de­lays with com­mis­sion­ing at six plants. But these deals to sup­ply fuel are locked in with con­tracts so it’s only a tim­ing is­sue. Once all the plants are op­er­a­tional this will be yet an­other long-term rev­enue stream for the busi­ness. (DS) SHARES SAYS: Buy at 288.5p

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