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There are two reasons that I don’t usually write about small-cap companies. The first is that that they don’t typically generate much in the way of big news. The second is that my boss keeps telling me to follow the Big news. Well, today I think that FastJet (LSE:FJET), a company with a market cap of £24.89 million as of 01 June, is BIG news.
Yesterday FastJet shares jumped by 58% following publication of their operational update, climbing from 0.68 pence to 1.075 at the close of trading. Today it has posted an additional 24% gain of 0.26 pence to 1.34 as of 2:20 pm. The interesting news on the trading side is that it has been the second-most traded stock today with a volume of 210,539,302 shares traded, nearly three times the volume of the next most heavily traded stock today, Lloyds Banking Group (LSE:LLOY).
Now for the drama behind the headlines.
FastJet, which operates as a low-cost airline in Africa, is a relative newcomer to the London exchange, originally listed on the AIM on 02 July 2012. The airline gained some negative publicity when KPMG released an audit report that there was “significant doubt” that the airline would be able to continue to trade, due to the fact that it had lost $56 million in the 18 months ending at 31 December 2012. What the audit report failed to point out was that actual flight operations had not begun until a month before the end of the audit period.
In a rebuttal to the audit a FastJet spokesperson politely responded that “the results are extremely historic and not relevant to the (actual) performance” of the company. The spokesperson pointed out that the company had already flown nearly 800,000 passengers by the end of the first quarter of 2013 and is already ranked second as Africa’s most liked airline.
The audit report was so “highly unusual” that a senior manager at a rival auditing firm said that the person who released the report “should be put on a tight leash because financiers and banks also read such statements and from what I read, this will not be helping the company to resolve the underlying issues.” This reminds me of a time when my company was being audited by a firm that shall remain unnamed (it starts with two L’s) and one of the auditors – in an audit review question-and-answer session – said that he was “not of a mind to answer any questions.” After some serious correspondence and discussions with his superiors, he learned how to ask questions like, “Would you like fries with that?” What the audit report did for FastJet was to negatively impact its share price until investors could see a more accurate picture.
The truth will out.
According to the operational update issued yesterday, FastJet revenues were $1.8 million in Tanzania, up 50% from the first of the year, along with an 11% increase in load factor. The company reports that it is more than covering its operating costs within the country.
Travel bookings in Ghana were up 11% from the previous at the end of May. Revenues were up, and the company is planning to increase the scale of its operations there as soon as possible.
In Angola, FastJet has experienced a 63% increase in passengers per month since the beginning of 2013.
FastJet CEO, Ed Winter, summarized the company’s performance, saying, “Our continued growth in both Angola and Ghana is enormously pleasing. Simply put, we are carrying more passengers, enjoying increased yields and an ever improving level of dispatch reliability in each of these operations. Since the start of the year, we have grown the business substantially in the face of challenges. Our prospects in each of our operations look very positive and our aim to become Africa’s first low cost carrier is well on its way to becoming a reality.”
In the time that it has taken to complete this story, another 26 million shares of FastJet have been traded. The share price has pulled back modestly to 1.25, still nearly a 17% gain on yesterday’s close. By the way, 26 million shares is more volume than the tenth most traded stock . . . for the entire day! As of this moment FastJet’s market cap has risen to £30.63 million.
I happen to think that FastJet is on a fast track to success. What do you think?
