Dart Share Discussion Threads

[tongosti] 22/10/2018 10:05

Wagner - appreciate your points. Where I think you go wrong is the following: if you work out FCF/Equity (ie before the company took on debt towards expansion) from 2009 to 2015 (which, on the other hand does not include one single year of a bear market, mind you) then the average yield over the whole period amounts to about 4.7%. Highest readings (ie great entry points) were between 2012 to 2014 where FCF yield was between 5 and 6%ish.This is a capital intensive business and I hope you see the point that FCF margins will not change meaningfully (because you will be serving a much higher cost base in the future due to expansion). In contrast to a service business where economies scales boost margins that is not the case for a business so capital intensive as an airliner. Hence, past FCF yields are a very good guide to the future because of the nature of the industry DTG is in. For the company to become attractive again (from a valuation perspective), then the share price would need to come down by roughly 50%.

[xc1] 22/10/2018 09:43

Heading for 450p in the days ahead

[wagnerlove] 21/10/2018 23:26

Thanks for sharing your thoughts Tongo. It is important to hear divergent views and avoid confirmation bias.

I think you are not distinguishing between growth and maintenance Capex in his FCF assumption. Dart has bought and largely paid for 34 Boeing 737-800NG aircraft in last three years. Unless you believe that a similar level of new aircraft orders are needed every year (i.e Dart buys 10+ brand new planes a year in perpetuity) then currently elevated Capex will fall sharply and FCF will rise.

Estimating “steady state” earnings for a fast growing company is clearly hard. But lets say you assume that 2018 depreciation of £111.6m is in line with actual maintenance Capex and Dart last year generated FCF (EBITDA minus Capex) of £130m, or a trailing FCF yield of 10%. I think this estimation of forward maintenance Capex is likely conservative as it is not taking into account that the 34 new planes are brand new, cost less to maintain than the older planes, and have working lives of several decades.

Regarding his reference to EV/FCF Dart is on a trailing basis a net cash, or narrowly net debt company, depending on how you account for the £1bn of gross cash on the balance sheet. As such EV is very similar to current market cap, meaning trailing EV/FCF is low double digits.

I agree that taking on debt always increases risk to equity holders, but in this case the debt is long-term (£485.5m of £806m total due beyond five years) and can be quickly paid down with the vast amount of cash flow the company is generating.

Another way to look at it is that Dart has spent just over £1bn over three years on new aircraft, has borrowed £806min this period but sits with gross cash of £1.08bn. This shows that it has effectively generated the cash to pay for the planes from its own internal cash flows.

The company has all but confirmed it grew 20% plus over the summer, where bulk of FY 2019 business is done. So you are today getting on a trailing basis a 10% plus FCF yield on a net cash company growing at 20% plus into next year. Seems like a pretty good deal to me. Would be keen to hear any criticisms of these observations.

[castleford tiger] 21/10/2018 20:34

Would like to know how you grow a company without taking on some debt.
The levels are low and the savings are huge.
25 extra seats on each flight adds up greatly.
The business has had to borrow little as pre payments have left a huge cash pile.
Compare us to Tcg for example.
Paying a lease monthly is expensive and you cannot afford to park them up.
We can at quiet times.
Looking at the group now after paying for 34 brand new 737/800 shows debt has increased.
FCF will improve and we are the strongest out there.
Tiger

[tongosti] 21/10/2018 17:51

Snorkel - I do see your points even though I hold a different opinion on some of them. Specifically on the FCF/EV front:It does not matter whether you use 5yrs average on the numerator or most recent reading, the best number you get is a FCF yield of less than ...2.5%. To me, such a reading hardly makes a case for a bargain don't you think? And that's even without bringing rising rates/elevated US markets arguments etc...Next, if you're still thinking of avoiding over dependence on any single metric, - and in light of the fact everyone on here likes quoting Buffett - it's worth remembering FCF is the one single number he always works out before he jumps in. Without a fail. In addition, financing debt by expansion undoubtedly burdens the balance sheet. Big time. Anyone with a distant sell side analyst background will wave red flag on Piotroski F-score equalling 4 and Altman Z scoring under 1.6. Both such metrics indicate there is a huge burden on the company's balance sheet and unless everything "goes as one wishes" the dream can turn to a dust fairly quickly. I am a numbers man and derive conclusions from numbers and facts only.

[woozle1] 21/10/2018 15:38

To avoid senseless discussions that take up your valuable time I advise filtering these two imbeciles (Tongo and xc1). Beyond looking at a graph and trying to second the share price trajectory (which we benefit from as they are the proverbial Mr Market), these fools have nothing to offer.
w1

[snorkelparker] 21/10/2018 09:21

fair comment on EBITDAR/EV of course your going to see a very big change over the last 10 years i'm sure, probably around or sub 1 in 2008 when the stock was at its lows. At that point plenty of people where banking on the business going bankrupt.

But no single ratio should be used in isolation. Of course the debt changes the dynamic a lot, but there are two sides to the coin. This ratio doesn't capture DTG that well in my opinion, as it is lop sided, not reflecting the cash on the B/S in advances and assets such as planes and infrastructure investment, new bases, training facilities etc.
Certainly going to look at the way the current planes are financed in more detail, but as stated it has to be looked at from a bigger picture. Plane purchase should make Jet2 more competitive with regards to the costs of interest & depreciation vs lease or wet lease. If the current new fleet was leased rather than debt financed the EBITDAR/EV should be around 6 rather than 12 ish currently but would that change the business drastically ? No hence the reliance on a single ratio

So in times of good load figures which everything points to currently I'm comfortable.

What i'm not comfortable with one is the state of the UK politics etc. you have to think cool heads will prevail, just because things like this I.e Greek crisis have usually sorted themselves out ..until they don't. This far out-ways the negative commentary on CAPE and end of bull run speak that's very tricky to time.. The markets where supposedly crashing 40% in Jan 2016 and we all know how that turned out.

Interest rate rises my stall, you can find cases to back either a rising rate environment or a benign rate environment, really do we know ?

Regarding your point on EBITDAR/EV are you just stating it's high when compared to other airlines as the basis for the comments or have some further commentary on why in DTG's case its particularly dangerous ?

Figures quoted are approx as just skimmed through the numbers

[tongosti] 20/10/2018 19:35

Tresham - at the risk of sounding redundant my earlier post was referred to the poster preceding you

[tongosti] 20/10/2018 19:34

Thrilled you've taken me off your filter. What have I done to deserve the honour:)Needless to say, you'd better learn how to engage in an adult conversation to merit a reply (better go back to your broken "best thing since sliced bread" record)Next ...

[tresham] 20/10/2018 19:28

Thanks for sharing your thoughts Tongosti
1. Projections of 20% growth are not unrealistic given past earnings growth. There has been some moderation on this site with regard to increased oil prices and competition

2. There is very little debt compared with Ryan, Easyjet, TUI and Cook.
3. Competition has shops, pensions, and much goodwill that is worthless.
4. Brexit may kill competition and will be a worry for us.
5. No the PE is low.


1. Bad English and nonsense. Is the US market deceiving the bull crowds? OK maybe?
2. I think you are confused with jargon. Even Buffet has re-based comparatives since low interest rate markets.
3. Yes interest rates are going up but 3% is not enough to compete with an earning ratio of 8% rising at 20%
4. I would agree the market is in for a decline.

I could easily have sold on the way up from £1 but just think that would be foolish.
I would be interested to know if you have ever flown with Jet2? Have you got personal experience which has upset you? I am intrigued by your need to target Dart? There really are some better sell targets; don’t you think?

[castleford tiger] 20/10/2018 18:56

Let me try
The shares moving from 12 p to 850p is not due to the bull market but due to the companies growth in real earnings per share. Currently we trade at 8.5 x current forecasts.
This point has me lost but I think I know what you mean. They have or are spending to grow the company.


You need a fleet to move people.
You can buy or lease. Dart buy very well and very cheaply
They then expense that asset over its life.
Are dart jet 2 the cheapest all the time?
Not at all
The product we offer is superior to others. Why are we growing so fast?
The numbers returning are very high.
Our fixed cost base is lower than Tcg
Look how much of our earnings we get net against them.

Brexit is not an issue for us compared to others flying from within the Eu

People will go on holiday
If there is a slow down it will hit TUI and TCG first.
Tcg is in big trouble.
Dart uses 50% of the plane for holidays and 50% for seat only. Perfect balance

You presented this best case months ago.
Looks where Dart is.
A business without a load of debt growing 20/30% pa and with 75% of the market still to go.
All these uncertainties currently mean people want a package holiday.
Flybe in trouble and TcG going to be opens doors for dart.
No longer afraid of RYAN it’s them that are bricking it
Tiger

[tongosti] 20/10/2018 18:13

You asked for a bear case. Below is a summary that includes not only the micro side (which this board is exclusively focused on) but also the macro one (which no one on here has an opinion about and is a deadly serious risk - for any company out there let alone a simple travel&leisure business with no durable comp advantage). Micro 1. Ever rosier future projections following an unprecedented bull market from the distant 12p level. Existence of this ever promotional board itself is another proxy for what lies ahead. 2. Growth funded via much higher levels of debt. Then, think about the adverse impact on the capital structure of this company. 3. There is no comp advantage in this business (competing via price route only is the equivalent of very thin ice)4. Have not even touched on Brexit...5. Valuations - most on here agree they're "compelling". A casual reader of history will testify to exact same for such an industry at the top of the market cycle anywhere, globally. Macro1. US is the only major market which is deceiving the bull crowds. Check out MSCI World ex-US performance this ear. Always has and always will be the canary in the coal mine for the select few who bother to separate their ego from making money2. Valuations (no need on speaking re Shiller's CAPE and Q ratio any longer - one should know about these ones already) 3. 10yrs US treasuries > +3% for a while now. A bull market in Gov paper inevitably means the death of the bull in equities. 4. Narrowing spread between Value VS Growth spreads - historically a bell weather of significant market declines (check out MSCI respective indexes for further info). List goes on but above should be enough of a head scratcher. Adults only can engage - muppets (you know who you are) & promoters (you know who you are too) will be ignored. Newbies - time to either stay away or go short. Reward risk profile is terrible for the bull case. SELL

[snorkelparker] 20/10/2018 16:37

I did say if they slowed down, no signs of that currently as you said..

[castleford tiger] 20/10/2018 13:27

Slow !!
I think once people start to fear that some other players may not be around the bookings will INCREASE.
Capacity will be JET2s biggest problem 2019 they wont have enough.

I think TCG will present worse figures than expected and a cut in their debt rating may trigger alarm bells.
Its not if but when in my opinion.

Not sure why EZY has had such a bad few months but I rate them a great long term buy at 8/10 pound range.

Oil prices are starting to fall a little we may well of seen the peak there ( another prediction!)

Good luck
Tiger

[snorkelparker] 20/10/2018 08:30

Today forward P/E 8.9 based on .95 eps 2018/2019 forward NAV approx 650mil think i will base on that current fact rather than a 200ma.

If the business starts to slow significantly then a re think will be needed ..but signs are good.

Sentiment is well off at the moment and understandingly so, its a total mess and left with the current clowns there is some possible real risk out there.. no surprise SP's are slipping.

To all the shorts please share your case with respect to specifics, i'm always looking for what I don't know or cant see.. share your bear case ..

[snorkelparker] 20/10/2018 07:55

lots of volume coming in at the end of the day, with the stock on the rise..
Not sure what the relevance of the 200ma is xc1, if it was that easy we would all be very rich..

[castleford tiger] 19/10/2018 19:38

Time will tell xc
Tiger

[xc1] 19/10/2018 16:41

Closed on 200ma, small bounce Monday before down to new lows during the week. Sell.

[snorkelparker] 19/10/2018 16:34

Tresham,
Totally agree on a main market listing if IHT law is changed.
SNK

[snorkelparker] 19/10/2018 16:30

CF,

Looking at the break down of ownership listed in Simply Wall St is as follows:-
38% individual Insiders
48% Institutions
8% Hedge Funds
5% General Public

Today's sell off as nasty as it was, had very little volume 300k as of now. so guessing the sell off may be just smaller players.
Some renewed short interest at the fund level but only shows positions held over .5% of the company and there is 1 company (Marshal Wace) at .6%. Bulk of which was taken 25th Sept probably during the big drop that day.

My point is there doesn't seem to be a much short interest in the stock.

[tresham] 19/10/2018 16:28

Great fundamentals, competitive situation positive, Bought a few more Dart at £8.34
(TCG have £3billion GW, which is largely worthless)..
I wonder if TCG could have a rights issue and institutions are selling other airlines to finance it?
Funny how one or two commentators here give no reason for their sell opinion yet they get the direction right in the short term? That shows a nervous market and probably a good time to buy.
If IHT AIM exemptions disappear. Dart will go on main market and should increase share price

[wagnerlove] 19/10/2018 16:22

Unconfirmed theory for weakness. Aim share IHT exemption may be cut in the budget at the end of this month. Treasury has confirmed it is under review. Specialist IHT funds hold large amounts of largest Aim stocks, such as DTG. If IHT exemption gets lifted these funds would presumably have to liquidate and there is possibility of large forced selling of Aim shares in general. Any thoughts?

[tongosti] 19/10/2018 16:16

Hilarious some mention EBITDA. Quite frightening. WTF pays for capex - the tooth fairy?!EBITDA is he biggest marketing con coming out of the HF world. Fortunate for them there are plenty of ignorants out there.

[xc1] 19/10/2018 16:10

Dtg very bearish.Lower lows, lower highs.