Another good business the market has got wrong: now you can buy it for 20pc less

Again, overstated Brexit fears are offering up an opportunity in travel, says James Connington

MID-SIZED companies are capable of posting astonishing gains over relatively short time frames. The difficulty is in timing the purchase.

Sometimes, however, the market delivers what seems to be a clear opportunity. In the case of the £800m Dart Group, last week’s results disappointed the market. Investors who had bought recently in the hope of rapid gains turned their backs in disgust, resulting in a 20pc share price fall.

The company operates the Jet2. com leisure airline and Jet2holidays packages covering destinations across Europe. It also incorporates food distribution business Fowler Welch. This is a fresh food delivery and logistics business.

Its airline business is centred in the north of England but flies out of Edinburgh, Glasgow and Belfast too, and has recently added hubs in Stansted and Birmingham. Share price growth has been spectacular. Prior to last week’s fall, the stock had gained 85pc in nine months and, over five years, it is up 600pc.

It has not been a smooth journey, however. The price fell by more than 40pc between May and October 2016, on the back of Brexit fears, but had nearly recovered to its previous peak before this most recent hit.

One professional investor taking advantage of the most recent dip in the share price to buy is Keith Ashworth-lord, who manages the £150m Conbrio Sanford Deland UK Buffettology fund.

The fund – in which Dart Group is a top 10 holding – has posted returns of 141pc over the past five years, double that of the average UK All Companies fund.

The portfolio is managed along principles that seek to emulate Warren Buffett. Mr Ashworth-lord has held the stock since 2012 and has been following it for far longer.

He likes the marriage between the package business and the airline, as the former is successfully used to keep flights full.

In his view, the market was mistakenly anticipating far stronger results, possibly having misinterpreted a prior trading statement. This resulted in disappointment and a sell-off.

“It depends who you believe as to whether the actual results were in line or slightly below expectation, but there were a lot of one-off or exceptional costs,” said Mr Ashworthlord. Costs included weak sterling, impacting US dollar borrowing costs; new aircraft, new flight hubs, and an extension to Fowler Welch’s distribution centre.

Profits were dented but revenues across the group increased by 23pc.

“There was an awful lot of expansion in there. That will continue, which will make for a difficult year, but the consensus is around 40p of earnings-per-share for the current year,” Mr Ashworth-lord added.

That places Dart at an expected price-to-earnings ratio of 13, which he does not view as expensive for a business that could reasonably grow earnings “at 10pc to 15pc compound over the next few years”. As it takes in cash from holidaymakers who book trips in advance, it also has less need to borrow.

A quirkier attraction of the business is the uncommon and deep caution of Philip Meeson, executive chairman. He owns 38pc of the company, too.

Part of the trigger for last week’s share price reverse was Mr Meeson’s gloomy prognosis that Brexit would affect the company’s “freedom to fly” and customers’ “ability to travel”.

Mr Ashworth-lord believes this “blackest of black” scenario is unrealistic.

“Are Spain and Greece going to stand by and lose out on the money British tourists spend? I doubt it. Mr Meeson is a very cautious individual. We’ve seen this before: expectations being dampened down before a surprising upside,” he said.

He admires Mr Meeson and, in particular, his strategy of investing for the long term.

Asset manager Schroders is the second largest shareholder: Dart Group is a top 10 holding in the £700m Schroder UK Smaller Companies Fund.

As with any airline and holidays business, Dart faces key headwinds. A rising oil price would be one. Tougher economic conditions, causing holidaymakers to tighten their belts, would be another.

It has hedged its fuel requirements up until the end of the next financial year, but both scenarios would be problematic.

Questor says: Buy Ticker: DTG Price at close: 520p