Flybe Share Discussion Threads

[europa79] 31/7/2018 15:54

It's a bit like that film with Kirk Douglas in....where everyone stands up and declares "I AM NOT SAMBAILEY". :)

[bray2] 31/7/2018 13:20

I am NOT sambailey100 ?

[el8ted] 31/7/2018 13:05

Can only hope that Bray2 isn’t the same disgruntled poster who completely ruined any Flybe discussion on another forum. Someone over there is of that opinion this morning...can see the similarities, but definitely hoping it’s not so.

[netcurtains] 30/7/2018 21:43

bray2: we all have motives otherwise why get out of bed in the morning? We do everything for a reason even if we are foggy about the reason. I bet on FlyBe because I can see it going to 80p but its been a heck of a long time - I'll give you that. We need to break 45p soon...

[bray2] 30/7/2018 21:33

I have no motives what u on about

[sporazene2] 30/7/2018 21:27

nice work toffeeman. interesting that Bray turned up on June 26th, only posts about flyb and all of it generally negative.

So Bray, time to come clean about your position/motives??

[bray2] 30/7/2018 18:36

Great thanks for the clarification

[toffeeman] 30/7/2018 18:34

Nope - it was a paired trade - so probs a swap between two funds held by the same intsi

[netcurtains] 30/7/2018 18:14

Interesting - do we know who the buyer is?

[bray2] 30/7/2018 18:03

Somebody sold near 2m sharers today

[netcurtains] 30/7/2018 16:53

I think brexit is a red herring too. Its never going to happen, its a fairy story.

[el8ted] 30/7/2018 16:21

For any bid of 80p you’re assuming someone sees an effective doubling of the current market cap. Whilst I feel things are moving in the right direction, there is still no profit in this business as it currently stands. Further and sustained cost reductions are required...perhaps even a significant headcount slimming.

Brexit remains a red herring given that the vast majority of sectors flown by Flybe are within the UK. There may even be money to be made by selling off the DUB slots.

[netcurtains] 30/7/2018 16:09

yeah i see all that - but when the CEO of Arcadia went the company was bought up for a 20 bagger..... So, assuming leaving CEO means "its going to blow" it could be any time! (borrowed time sounds good) - Personally I'd take 80p and be happy.

[bray2] 30/7/2018 15:34

Personally i cannot see anyone putting an offer in at present as a number of factors remain outstanding the main one being the impact on Brexit and the ongoing taxation.I do agree with the general consensus that the ceo after two years is on borrowed time and has achieved very little during her time at company.

[netcurtains] 30/7/2018 14:38

when do you think next bid will come in? I'm guessing sometime in september for 80p-ish

[el8ted] 30/7/2018 10:25

One of the issues I find interesting is the relationship between Stobart’s former CEO, Tinkler & the fund manager, Woodford. If the latter really thought there was value in Flybe, I’d have thought with the influence and funds at his disposal, a swift takeover could have been facilitated. But perhaps greed got in the way?

I’m not convinced Stobart will return for another look come September, however that doesn’t rule out another bidder. The company fundamentals (although taking previous comments on this thread into consideration) do look to be improving, but the company really requires better economies of scale, which can best be put in place by a merger into a larger operation. I doubt BA or Ryanair would want Flybe, but there could be overseas players who do.

The CEO will be in situ 2 years by December and without a significant company performance I would suggest she may end up on borrowed time fairly soon in 2019. The share price performance has languished too long and with the Stobart approach being rebuffed, it is imperative she shows why it was.

[phillis] 30/7/2018 09:55

When the broker's analyst comes to call on management (s)he outlines his/her assumtions and management tells him/her which are wrong and why
With cash flow and EPS numbers management just wink if they are in the ballpark

It suits management to have a high and low in the range as it affords some flexibility

Any analyst forecast that was way out would soon be more specifically guided by Management

[bray2] 30/7/2018 06:38

I get your pain but I never filtered this person as whilst they were constantly negative about company they were also correct in many areas.

[netcurtains] 29/7/2018 18:01

sorry. ...dangersimpson2 Yeah you are right - with the smaller aircraft coming in 2019 their percentage of full planes should go up significantly. Especially post 2020 when all the bigger Embraer taken out of service.

Its looking good! Thanks

[dangersimpson2] 29/7/2018 17:52

Thanks all for the replies, interesting to hear what others are thinking. Let me go through the points as they are raised:

Sporanze,

Yes the idea that Stobart were rebuffed at 50p is certainly an indication that the management think the company was worth more at the time (although I also note that Stobart Air didn’t actually have the cash and was planning some kind of merger rather than an all cash deal.) I certainly thought that the Stobart Air deal undervalued Flybe at the time (and made that point to management) but at the time we had not had the full year results released or the Q1 trading statement. I was forecasting a profitable H2 for the first time in a long time and an overall profit of £23m for the year (see my post 4264) based on inflationary increases in most costs but reduced aircraft rental with aircraft handed back, cheaper fuel based on hedge prices and higher depreciation with more owned aircraft.

Instead what we got was higher aircraft rental costs, ground operations increasing above inflation, a big jump in maintenance spend and an IT provision that combined gave a £13.5m operating loss for the year. Of course management would have had a good idea of the full year status even if it had not been released to the market yet, but with further above inflation Q1 cost increases having occurred since the Stobart discussions it seems less clear that the offer actually undervalued the company.

Re: costs for the rest of the year the exact wording is “The increase in cost per seat is expected to slow significantly…” not "significant reduction in cost per seat for the remainder of the year". So this implies that costs will rise in H2 but not at the 16.6% rate of Q1. Hence I’ve modelled both 10% increase H2 and 5% increase to give an idea of the impact of this.

Note that the 8.4% increase mentions the cost impact excluding the release of the onerous lease provision on the E195’s not the release of the leases. How I read this is that they have recognised the E195 leases as onerous and in the past taken a provision through the income statement that reflects this. Hence the large provisions sitting on the balance sheet. If these prove to be less onerous than originally planned they will write back the provision through the income statement however since a provision is a cost that has gone through the income statement but has not yet been paid out in cash then it would be unfair to measure costs as having been reduced simply from writing back a provision. After all this is still a real future cash payment out of the business that will have to be made it is just a bit less than originally planned. I’m open to other opinions with others who have greater experience with the accounting of onerous lease provisions though.

Netcurtains,

Not 100% sure of your argument but I think our differences come down to time-frames. You are talking about future ideas for revenue that may come about in 1 or 2 years’ time, and are unquantified – for example Flybe already has a hire car partner so not sure how this will have any significant impact.

So you are talking about the potential upside if they can generate extra revenue streams and significantly reduce costs. Yet despite reducing their fleet, implementing a new IT system and other initiatives over the last few years costs keep going up at double digit rates. To value something you have to think probabilistically, not just the potential outcomes but how likely they are. How likely is it that costs will actually significantly reduce this year or next?

Risk definitely doesn’t = reward in every situation or we would all just invest in wildcat oil explorers!

PS I think you have your 195’s mixed up with your 175’s – the 175 is the one that is being added to and the 195’s returned.

Jerseyman,

Would be interested in your further thought when you are back from holiday and can run the numbers more fully.

You are probably right the white label revenue may be a bit light just taking Q1 as representative of the average for the year. However in the results they state:

Other revenues, which primarily reflect airport partnership agreements, fell by 15.9% to £19.6m on the back of reduced losses being passed back to the airports as the route networks have matured.

So I would expect the other revenue to keep declining as their deals with airports end and the increased load factors reduce the operating losses on a route by route basis. Overall something like £65m total white label & other for the FY would seem about right. This would still be down on FY17/18 and wouldn’t make a significant impact on the FY outcome in my modelling. The only thing that would really make significant difference to the FY outcome is cutting a big chunk of costs out of the business compared to where we are in Q1.

Would be interested to see if we get updated brokers notes on the back of the Q1 update. If they do refresh their models and come out with similar forecasts of -£2m operating losses then the notes should reveal how management have guided them to those figures and where I may have gone wrong. However if we don’t get updated notes though I would take those forecasts with a pinch of salt until we get a trading statement. Last year it took them until mid-October to release that they had missed their forecasts for the half year ended 30th September by spending more on maintenance. I can't believe that the first time they realised they'd overspent was 17th October.

Enjoy the beach!

[jerseyman1] 29/7/2018 10:04

Hi dangersimpsonI'm on holiday in Sardinia and surprisingly am not really focusing on FLYB at present! I will have a proper look when I get back. Some initial observations ......other revenue seems light given £70m last year, cf £60 in your numbers, Easter being early will have subdued Q1 yield which has significant effect if extrapolated across year, £10 per seat additional cost must include one offs not to be repeated, as load factor rises then so will yield.....Not being critical, just trying to helpRe the point about results guidance to the market, I agree FLYB do not give explicit guidance, but there is a consensus formed by brokers from interaction with management, more of a black art, but nevertheless given the difference to the small loss consensus and your numbers then management would be aware of that and have to re guide and/or RNS it. Off to the beach.....

[sporazene2] 29/7/2018 08:06

@dandersimpson, thanks. whilst I don't for one second doubt the accuracy of some of the assumptions that have gone into your financial model I find it unfathomable that they didnt sell the company for ~50p to Stobart earlier this year, if your model plays out.

Fuel and Sterling had already been hedged for most of the year at the that point and presumably the CEO made a case to the board about the recovery prospects at the time. You are painting a very different picture.

From a further read I saw a couple of unknowns that could impact the results, one is the quantum of the guidance of a "significant reduction in cost per seat for the remainder of the year" this is will be key. Further the update also talks about a 8.4% increase in CPS excluding any benefit from the release of the E185 leases, presumably this then will have a positive impact on the pre tax profit position at the interim and final results.

What I would say is that if we do see H1 losses in the range of those that you are forecasting then I would imagine we will be looking for a new CEO.

[dangersimpson2] 29/7/2018 00:31

hi sporanze,

Yes you are right, thanks - it is actually due to me calculating the figures based on the quarterly figures and then adding them up to the half year manually. When I link the formulae form my quarterly calculations then H2 seat capacity is guided at 5.6m not 5.7m, essentially due to rounding.

If I correct this it means that 16% reporting currency cost increase in H1, and 10% in H2 would give a loss of £56.2m or £39.6m if you assume 5% cost increase in H2 instead of 10%.

hi netcurtains,

Unfortunately these are not 'potential' problems. They are real problems that they are facing this year, primarily that their costs even excluding one-off things like additional IT spend are increasing faster than their revenue. If they can significantly reduce their costs and maintain them at the lower level, and survive any short term cash out-flows from the cost increases this year without raising additional equity then you are right they could multi-bag from here. Unfortunately I see little evidence that they can actually reduce their costs. The returned planes and seat capacity reductions were meant to achieve this this year and instead we are seeing costs increase significantly. Re: takeover - this could still happen, maybe a bigger airline could buy them, aggressively attack the cost structures and make a good return however I never hold purely on the hope of a takeover, especially when the short term potential for increased losses looks very likely. If it happens though I will be pleased for you.

[el8ted] 28/7/2018 19:54

I agree toffeeman. A certain other forum is utterly dead...killed off by some poster who had a dreadful grudge against Flybe. This board seems to attract real investors with interesting and well articulated points of view.