Share Name Share Symbol Market Type Share ISIN Share Description
Skywest Air LSE:SKYW London Ordinary Share SG9999002018 ORD SGD0.20
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  +0.00p +0.00% 29.75p 0.00p 0.00p - - - 0 06:30:09
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Travel & Leisure 152.4 3.4 1.8 15.6 63.38

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briangeeee: It's Au22.5c in cash, plus 0.53 VAH shares per SKYW share held.
granitetim: Under its cash and scrip takeover bid for Skywest, Virgin is offering 22.5 cents in cash and 0.53 shares in Virgin Australia for each Skywest share. Virgin said it had secured in-principle agreement from Skywest to go ahead with the offer, which is worth 46.88 cents per Skywest share. Skywest executive chairman Jeff Chatfield said the offer, represented a substantial premium to the airline's share price and would only go ahead in the absence of a superior bid. "Skywest will be appointing a Singaporean independent expert to advise the board on the value of the proposed consideration," he said. So about 34p.;)
nfs: I bought in today, prospective pe ratio below the yield I assume the slowdown in the Aussie economy is holding these back,but the atr deal with virgin is stronger than the share price suggests,I hope so anyway!
davydoo: Interesting comment though about the market not recognising the Virgin deal, as the share price is where it is before there was any hint of that deal. Yet its due to grow to be bigger than their existing (non-charter) business in Western Australia.
saucepan: Strategic Alliance with Virgin Blue announced today: hopefully will add further strength - operationally and to the share price.
saucepan: Hi Folks I joined you long just now, thanks to a heads up from URVNME on the ADVFN Zulu thread. SKYW looks an exciting growth company in the Zulu mode, with no debt. In case of interest, here is a ShareScope snapshot of fundamentals, showing the impressive growth patterns and value to be had - which is what attracted me: It also seems a good time to be buying, technically. To me, it looks like the share price is just starting to move up again after a healthy period of consolidation. Last but not least, it seems I have discovered a quiet ADVFN thread; which is usually a good sign!
davydoo: I seem to remember from the high oil price days that they built in fuel surcharges to their charter contracts which might still be running now. This is the only news i could find that would support the recent share price gains, especially as australian investors make up an ever increasing proportion
stegrego: GECR Skywest Airlines* -Update - Reiterate 'Buy' at 17.75p; Target Price 32.5p Since we commented on Skywest Airlines* following the company's interim results in February, Western Australia's largest regional airline has reported a further five months of increased regular passenger numbers. The company has additionally announced it is to provide services under a further scheduled charter deal, has leased another aircraft and has extended the licence period for the coastal network licence it operates. We highlight some pertinent risks but consider the current earnings prospects and balance sheet to merit a near 100% uplift in the share price to 32.5p. Currently at 17.75p, our stance remains buy. For the year to 30th June the company has reported a 1.61% increase in regular passengers carried and a 9.04% increase in charter services flown. Load factor, the company's calculation of which does not include charter passengers, has improved from 51.59% to 54.31%. This performance provides the backdrop for some of the other announcements Skywest has made since its 22nd February interim results announcement. On 10th March Skywest announced a scheduled charter agreement with CITIC Pacific Mining, the majority shareholder of which is large, diversified Chinese state-owned enterprise, CITIC Group. This is for services between Perth and Karratha and provides for anticipated revenue to Skywest of Australian $10.4 million for the initial one year term, with a term extension option available, scope and revenue to potentially increase should additional services be required and the deal subject to monthly fuel rise and fall calculations. The agreement is significant (Skywest's revenue in the six months ended 31st December 2009, for example, was A$87.04 million) and also allows 10% of seats to be sold to regular travelling members of the public. This latter point also highlights how Skywest is differentiated from typical airlines – with its 'dual' business model enabling it to boost efficiency and being in-line with government transport policies. This accordance with transport policies has undoubtedly helped the company gain an extension to its coastal network licence – the destinations on which are subject to periodic tendering and review. Skywest's licence has been extended to 27th February 2011, with a Western Australian Government review of Intrastate Airservice Arrangements expected to lead to various requests for proposals and Skywest to, once again, participate in this process. The periodic tendering and review for destinations on the coastal network of Western Australia does mean a degree of risk to Skywest. However, the airline has been providing services in Western Australia for 46 years, offers – as mentioned - the ability to combine regular passenger and charter services in line with government policy and also continues to provide a strong service – being, for example, the leading Australian airline for on time departure punctuality in February according to The Australian Government's Bureau of Infrastructure, Transport and Regional Economics. Skywest thus looks impressively strongly positioned and talks of seeking "the opportunity to extend and increase the services and destinations in its network within the regulatory framework". Skywest's location of operations means that the company's performance is particularly linked to the resources industry – with its main charter clients being the major mining operators in Western Australia. Whilst we continue to believe the broad sector outlooks remains positive, a further potential risk to Skywest is the well-documented proposed changes in the Australian resources sector tax regime. However, since initially announced, the proposed changes have been altered in a way that has "encouraged" major miners BHP Billiton, Rio Tinto and Xstrata - and we do not believe the Australian government would want to cause too much disruption to an industry which is critical to the country's economy. As we noted in our analysis of Skywest's February interims, the company's strong performance suggests our forecasts of a pre-tax profit of Singapore $21 million and earnings per share of 3.25p may prove conservative. However, even on these numbers, the shares, at their current 17.75p, trade on an earnings multiple of 5.5. Though a couple of pertinent risks have been highlighted, we still see by far the most likely course is that Skywest grows robustly in the next few years fuelled by continuing demand for commodities. As such, we maintain that an earnings multiple of 10 and resultant 32.5p share price remain more than merited. We note that Chairman Jeff Chatfield and Non-Executive Director John Jost sold shares on 16th April but they retain 16.08% and 1.91% of the issued share capital respectively, clearly aligning their interests with those of shareholders. Together with the company's strong cash generation, a solid balance sheet and potential dividend yield of 3.9%, our stance remains buy.
atlantic1953: WH Ireland on Skywest* 1For the year ended 30 June 2009 (FY09), Skywest reported revenue of S$180.9m upon which pre-tax profit of S$5.1m was earned. The comparable figures for FY08 were S$184.2m and S$12.8m respectively. Note that our presentation treats dividends received as financial income rather than revenue. This is a particularly impressive result in the circumstances and it more than reverses the pre-tax loss of S$2.5m incurred in the first half. · Management had to contend with several adverse factors during the year including worsening economic conditions, a significant drop in the value of the Australian dollar against the US dollar and the impact of escalating fuel prices earlier in the period when oil reached US$140 per barrel. It was mainly currency factors and fuel costs that lay behind the H1 loss. In response, management shifted the strategic focus from pursuit of growth to fiscal conservatism. · The operating statistics show that passenger numbers on scheduled regional services fell by 9.9% from 387,000 to 349,000. Revenue passenger kilometres declined by 1.5% from 317.9m to 313.2m. This compares with an increase in available seat kilometres of 0.9% from 562.0m to 566.9m, consistent with a decline in load factor from 56.6% to 55.3%. The star of the show was charter services with Skywest operating 2,614 charter flights in FY09 compared to 1,566 in FY08. For the year under review, charter revenues climbed to over 50% of group income. · For the year as a whole, gross margin increased from 52.1% to 55.7% but operating margin was held back primarily by the increased rental cost of aircraft. Before rental costs on leased aircraft and depreciation costs (mainly relating to owned aircraft), the EBITDAR margin fell from 20.4% to 20.1%. Rental costs rose from S$15.0m to S$20.0m (8.1% of sales to 11.0%) with three more aircraft being operated. After these costs, the operating margin fell from 6.7% to 2.9%. Included within operating expenses, cross hire costs were higher than they might have been because fleet growth was held back in response to the economic climate. Thus the airline has not always deployed as many aircraft as it was potentially able. · In the event, operating profit fell by 57.8% from S$12.3m to S$5.2m. With lower average cash balances during the year, a small net interest charge was incurred (compared to interest receivable in FY08) with the result that group pre-tax profit fell by 59.7% from £12.8m to £5.1m. · Weighted shares in issue was slightly lower as a result of buying back 4 million shares for cancellation and 1 million for Treasury. But the effective tax rate rose from 27.9% to 38.2%. In consequence, basic EPS declined by 65.3% from S¢4.61 to S¢1.60. Fully diluted EPS fell by 64.3% from S¢4.34 to S¢1.55. A final dividend of S¢1.0 is proposed. · Looking beyond the current economic and financial crisis – and it is worth recording that Australia has been much less affected than other developed economies – management sees huge growth potential for Western Australia. This is particularly true in light of recent announcements of massive resource development such as the A$50bn Gorgon Gas Project where Skywest expects to benefit from a significant increase in capacity. Gorgon is set to produce a significant infrastructure and employment spin-off for WA over the next three decades and will be Australia's largest ever resources development. Skywest already flies the bulk of employees to the region under its existing 'fly-in fly-out' charter contracts on behalf of various mining customers and is also the primary provider of air travel to the North West Shelf's major service hubs such as Karratha and Exmouth. · Scheduled 'fly-in fly-out' contracts provide strong baseline recurring revenues. Skywest is well placed to capture more such business in WA and is tendering for various other charter contracts. The airline has acquired another Fokker 100 jet, which is slated for operating additional charter services. Initially, the aircraft has been purchased outright costing US$5m cash including refurbishment costs and securing regulatory approval. Once commissioned, it is likely that a sale and leaseback deal will be signed. The aircraft will lower Skywest's costs for the cross hire of aircraft from other airlines and increase the fleet to 16 aircraft. · Skywest also continues to provide conventional airline services to all of the major airports in Western Australia and beyond. This regular airline business for the general flying public continues to grow within a relatively stable environment. The scheduled route network continues to expand. During the period, the Government extended the Airline's exclusive licence for the Coastal Network of Western Australia. · Looking to the immediate future, we believe a year of consolidation is in prospect, as global economic conditions begin to ease, before reasonable growth returns in FY11. For its part, management too anticipates "a slow down in the rate of growth due to the global crisis of confidence in the broader economy associated with the credit institutions". Rapid changes in exchange rates and fuel costs still represent a significant risk to the business but recent trends have been benign with the strengthening of the Australian currency and lowering of oil prices. Moreover, agreement has been reached with the workforce providing labour cost certainty to the group for 1 year in the case of pilots and 3 years for engineers. · Based on 10x estimated earnings for FY11, we maintain a target price of S¢27 (currently circa 12p) giving upside potential of about 20% in the share price. Y/E June 2008A 2009A 2010E 2011E Sales(S$m) 184.1 180.9 185 200 PTP (S$m) 12.8 5.1 5.8 8.6 EPS (S¢) 4.6 1.6 1.8 2.7 P/E (x) 4.9 14.3 12.4 8.4 DPS (S¢) 2.5 1 1 1.5 Div. Yld(%) 11 4.4 4.4 6.6
anna faelten: Hi All, new BECR note out on SKYW [quote] Skywest Airlines*: Buy at 8.5p – Target Price 20.7p Key Data EPIC SKYW Share Price 8.5p Spread 8p – 9p Total no of shares 199,500,000 Market Cap £16.96 million 12 Month Range 8.5p – 18p Net Cash £2.39 million Market AIM Website Sector Travel & Leisure Contact Jeff Chatfield (Chairman) 07783 942 553 On 13th November Skywest Airlines Ltd, the AIM listed Australian and South East Asia regional airline operator, announced its results for the year ended 30th June 2008 revealing the greatest ever profits and revenues in the airline's 45 year history. Although the company noted that "shareholders must anticipate a slow down in the rate of growth due to the global crisis of confidence in the broader economy associated with the credit institutions", it is still anticipated to grow robustly this year and coupled with strong balance sheet support, including net cash of £2.4 million, and what should be a robust 5.8% dividend yield, the shares look significantly undervalued on a prospective price earnings multiple of 4.1. Skywest flies various routes within Western Australia – a number of which are operated under an exclusive State Government licence – as well as servicing the Northern Territory and Bali, Indonesia. The company enjoys a near monopoly on its commercial routes and has added security of earnings from booming long term charter agreements with mining companies. It continues to enjoy increasing regular passenger numbers, but it is in the supply of scheduled charter services for resource sector clients that the company has recently enjoyed its most dramatic growth. The most recent evidence of this came on 2nd July 2008 when Skywest announced a contract with Rio Tinto which it believes to be the largest single air services contract in the Australian markets for services of this type. Skywest's exclusive operating licence, which represents approximately 50% of its passenger numbers, together with the dynamics of its operating environment clearly differentiates the company from other UK quoted airline operators. In particular, it is able to pass fuel price changes onto customers which it does via a transparent rise and fall mechanism on a monthly basis. As well as including this provision, Skywest's charter contracts are typically with major companies and for multi-year terms which provides a level of earnings visibility conventional airline operators cannot come close to matching. There is risk from the company's present and potential customers suffering from the deteriorating global economic climate, a tightening availability of credit and recent commodity price declines, as well as an initial three year term on the company's exclusive operating licence ending on 31st December 2008 and the Government of Western Australia currently undertaking a review of intrastate air services to determine the post 2008 regime. However, it should be noted that Skywest's current charter contracts are multi-year deals with major companies, that the market for these services remain significant despite the global downturn and that a multitude of factors suggest the company will have a central role in a post 2008 airline structure. Therefore, we believe that fears about the short-term threats Skywest faces look over-discounted in the current share price and, together with a long-term view that commodity prices in general will trade at much high levels than those currently prevailing, we regard a price earnings multiple of 10 as far from demanding for these shares. This suggests a target price of 20.7p, but even at this level the shares would trade on a PEG of 0.73 and offer a yield – even on an unchanged dividend payout - of 2.4%, with this far from dismissible given the interest rate outlook. As such with the shares at 8.5p our stance is buy. Forecast Table Year to 30th June Sales (S$ million) Pre-tax Profit (S$ million) Earnings Per Share (p) Price Earnings Ratio Dividend Per Share (p) Dividend Yield (%) 2007A 130.49 12.70 1.26 6.7 0.73 8.6 2008A 184.20 14.48 1.82 4.7 0.49 5.8 2009E 210.00 16.50 2.07 4.1 0.49 5.8 Background AIM investors were first able to gain an exposure to Skywest Airlines when shares in Advent Air Ltd commenced trading on the market on 30th November 2005. At that time Skywest was a 62% owned subsidiary of Advent Air, with its shares quoted on the Australian Stock Exchange (ASX). On 12th October 2006 Advent completed the acquisition of the residual shares in Skywest and with the airline thus becoming a wholly owned subsidiary it was de-listed from the ASX. To reflect the mop-up takeover and the group's source of income, Advent Air changed its name to Skywest Airlines Ltd with effect from 20th November 2007. Skywest has been operating since 1963 and its brand name has become well established and regarded in Western and Northern Australia. Its core businesses are the provision of passenger airline flights within Western Australia and the Northern Territory, including a number of tourist coastal destinations, as well as Bali, Indonesia and the provision of scheduled charter services to resource companies. As a result of Western Australia Government policy, a number of coastal airline routes in the State are operated under exclusive licence and subject to periodic re-tendering. Skywest's standing in the region has enabled it to successfully tender for these routes, with the most recent tender win for a term of three years from 1st January 2006, with a further two year extension grantable at the Minister for Planning and Infrastructure's discretion, based on performance and adherence to licence conditions. With the exclusive right representing approximately 70% of Skywest's passenger numbers at the beginning of the licence period, the company has been able to exploit this stable operating base to significantly expand its business. The opportunity for expansion has resulted from a strong Western Australian economy – lead by an expanding resources sector, though with tourism also contributing. The company's most recent operating statistics published on 7th November showed that in its financial year to date regular transport passengers carried (excluding charter passengers) have increased by 2.83% to 137,083, but it is the scheduled charter side of the business where the company is enjoying the largest growth in revenues. During the same time period charter services increased to 750 from 442 – an increase of 69.7%. Operations Skywest's destinations are shown on the map below. Source: Skywest Airlines At the time of Advent Air's AIM admission Skywest's fleet consisted of five wholly owned Fokker 50 (F-50) aircraft (46 passenger seats) and three leased Fokker 100 (F-100) jets (96 passenger seats). Today the fleet stands at seven owned F-50's and eight leased F-100's. These aircraft have an estimated remaining useful life of approximately 10 to 13 years. The expansion of the fleet has enabled Skywest to continue to grow both its regular and scheduled charter operations – with it announcing on 19th May 2008 the largest increase in its network for several years. This has seen it increase capacity between Perth and the regional destinations of Exmouth, Geraldton and Albany and resume services to the town of Karratha. This follows the adding of additional Bali and Esperance services earlier in 2008 and the introduction of flights to Melbourne in October 2007. To encourage this growth and help facilitate a continuing increase in passenger demand Skywest has engaged in various marketing initiatives. During the year to 30th June 2008 it signed an interline agreement with European operator Hahn Air providing seamless ticket transactions, joined Virgin Blue's Velocity loyalty program and agreed a code-share of selected routes with Virgin (providing Skywest with access to Virgin Blue's ticket sales network and offering passengers connectivity between Australia's East and West coasts) as well as appointing specialist tourism provider Creative Holidays as the new operator of its packaged holidays division which offers packages across destinations in Western Australia, Melbourne, Darwin and Bali. Additionally, scheduled charter contract momentum has continued apace during the past year. On 2nd July 2008 the company announced a three-year contract (incorporating a 2 year option extension) with Rio Tinto for air charter services to mine sites in Western Australia which it believes to be the largest single air services contract in the Australian markets for services of that type. Rio Tinto has been a significant customer of the company since 2002 and in addition to that new agreement, contracts have also been announced in 2008 with Newcrest Operations Ltd, a member of major gold mining group Newcrest Mining, and Fortescue Metals Group Ltd, a leading iron ore company. These contracts are also both for three year terms with further term extensions possible. Other leading resources companies for which Skywest provides scheduled charter services on multiple year contracts include Portman Iron Ore Ltd (worth over Australian$2 million per year), BHP Billiton (worth over A$2 million) and Newmont (annual revenues of over A$3 million). Additional contracted revenues, consequential to Skywest's last three scheduled charter service contracts signed amount, in aggregate, to an additional A$111 million over three years and, subject to option exercise, A$170 million over five years – thus emphasising the growth in the scale of the company's operations. Strategy Skywest's strategy is focussed on continuing to grow its regular passenger transport and scheduled charter businesses. On the regular passenger side, the company sees the Western Australia tourism industry as a key area of focus. The enhancement of services to tourist destinations such as Albany and Esperance underlines this and the company will continue to seek to build exposure of its tourist destinations – as the ventures with Hahn Air, Virgin Blue and Creative Holidays have done. Where feasible, the company will also continue to add further routes to its network. On the scheduled charter side, the company will continue to aggressively pursue long-term contracts as and when they become on offer in the regions Skywest serves. Where possible, it will leverage its unique ability to combine regular and scheduled charter passengers on the same flight – a technique which maximises efficiency, is in line with Western Australian Government policy and represents a valuable proposition to the company's resource sector clients which are required to support local communities in consideration for their right to mine. In the past, the availability of aircraft has presented a challenge in the industry but Skywest benefits from having a dedicated aircraft lessor in PLUS Markets quoted Avation Plc*. Avation was spun off from Advent Air in 2006 by way of a special dividend to shareholders and Jeff Chatfield, the Executive Chairman of Skywest is also Chairman of Avation. A key element of this aircraft access strategy is that it avoids the requirement for Skywest to make significant outright capital investments. This ensures the company is able to minimise debt on its balance sheet whilst not harming earnings; if it acquired outright it would suffer increased interest and depreciation charges. Furthermore, additional increases in scale should enable Skywest to make further efficiency gains as overheads are in the main part fixed. The realisation of economy of scale benefits is a key focus of the company moving forward. In addition to these strategies to enhance shareholder value, Skywest has implemented a significant programme of repurchasing shares for cancellation. This is a further, and tax effective, method the company is utilising to increase its earnings per share. In calendar 2007 the company repurchased 7,936,073 shares for cancellation and thus far in 2008 a further 3,080,205 shares have been repurchased. Management Jeff Chatfield – Executive Chairman. The founder of Advent Air in 1997, Chatfield is an experienced public company and business director in the fields of airlines, aircraft leasing, radio, television and digital broadcasting. He is also Chairman of PLUS Markets quoted Avation Plc and a member of the Australian Institute of Company Directors and the Singapore Institute of Directors. Seah Kian Peng – Non-Executive Director. Elected as a Member of Parliament in the Marine Parade group representation constituency of Singapore in May 2006 General Elections, Peng has experience in both the public and private sectors. He attended the Advanced Management Programme at Harvard Business School and is the Managing Director (Singapore) of leading Singapore chain retailer NTUC Fairprice Co-operative Ltd and the Chairman of labour movement voice piece NTUC Media Co-operative Ltd, as well as sitting on the board of a number of Singapore public companies. John Jost - Non-Executive Director. A founder investor of Advent Air, Jost has been chief political correspondent of Melbourne's principal broadsheet The Age and has also served as publications and new projects manager for Australian publishing company David Syme Ltd, as well as being a founding presenter of highly respected ABC TV's national nightly current affairs programme The 7.30 Report. Ron Aitkenhead – Non-Executive Director. A Graduate and Fellow of the Australia Institute of Directors and a Justice of the Peace with the Western Australian Department of Justice, Aitkenhead has experience as Chairman of Western Australia's Fremantle Port and Chairman of the Board of the Central Wheatbelt Business Enterprise Centre. He also holds positions with several community and sporting organisations. Skywest Senior Management Team: Hugh Davin – Managing Director With a career in aviation which spans 37 years, including senior management and director experience with fellow Australian airline National Jet Systems, Davin joined Skywest in January 2007 as Head of Business Development. He was appointed Managing Director in April of that year. Paul Daff – Chief Executive Officer With over 12 years experience in both the low cost and full service airline industry, Daff joined Skywest in February 2007. He was previously Head of Commercial for Jetstar Asia Airways & Valuair, based in Singapore. Karen Haynes – Chief Financial Officer A member of Certified Practising Accountants Australia and with over 13 years experience in accounting and business services, Haynes joined Skywest Airlines in June 2007. Mike Hoar – Chief Operating Officer With a career in aviation spanning more than 25 years – including senior management positions with Pearl Aviation and Skippers Aviation – Hoar has been with Skywest since October 2003. SWOT Analysis Strengths: Established and well-known brand name - Skywest Airlines has been operating since 1963 and its brand name is well established and regarded by customers, industry and regulators in Western and Northern Australia. Sole permitted operator to a number of regional destinations - Skywest's current holding of an exclusive licence for a number of Western Australia coastal routes provides it with a stable operating base. The exclusive right represents approximately 50% of the company's passenger numbers. Multiple year scheduled charter contracts with major resource companies – Skywest's plethora of multi-year contracts with major miners provide the company with a reliable and highly visible revenue base, as well as cash flow to fund expansion. Experienced senior management team – Skywest has a vastly experienced team of directors and senior managers driving the business forward. Stable industrial relations – Skywest has predictable arrangements with the majority of its workforce. It announced in February 2008 a landmark three year collective agreement with the Flight Attendants Association of Australia and also currently has in place collective agreements concerning its pilots and engineers. Balance sheet – the company has net cash. Weaknesses: Reliance on operating environment – As with all airline companies, Skywest's financial performance is acutely related to its operating environment. Whilst many airlines have been suffering from unfavourable market dynamics for a while now, Skywest's unique position has seen it thrive. However, the company's operations are not immune from the global economic downturn and particularly the recent significant commodity price declines. In its recent results statement the company noted that shareholders should anticipate a slow down in the rate of growth due to the global crisis of confidence associated with the credit institutions. Reliance on regional regulators – In the Australian and South East Asia region where the company operates, regional governments retain significant regulatory powers. To the extent of this Skywest's development potential is not in its control. Opportunities: Additional long-term scheduled charter contracts with resource companies – Despite recent credit woes and commodity price declines, there remain billions of dollars worth of major resource projects underway or planned in Western Australia. Nearly all of these are totally dependent on air transport from Perth to mining sites in typically remote regions. Skywest's brand strength and market position means it is in a strong position to win further long-term scheduled charter contracts for such projects. Tourism – The company stands to benefit from long-term growth in Western Australia tourism and is actively seeking to build exposure of the tourist destinations it is able to offer services to. Further interline and code-share agreements may facilitate future growth in this area. Threats: Operating environment – The deteriorating global economic climate, tightening availability of credit and recent commodity price declines pose evident threats to both current and future demand for Skywest's services. In particular, a decline in commodity sector activity and a deteriorating Western Australia economy could stymie growth. However, it should be noted that the company's current charter contracts are multi-year deals with major companies and that the market for these services remains significant despite the global downturn. Initial term of exclusive licence soon to expire – The initial three year term on the company's exclusive licence ends on 31st December 2008 and the Government of Western Australia is currently undertaking a review of intrastate air services to determine a post 2008 regime. A new competitive tender process or the opening up of Skywest's current exclusive routes to competition are potential threats even though the company has reduced its reliance on its exclusive right from approximately 70% of passenger numbers at the beginning of the present licence period to approximately 50% currently. However, we would note that Skywest's current licence includes a potential two year extension grantable at the Minister for Planning and Infrastructure's discretion, based on performance and adherence to licence conditions, that Skywest's standing in the region has enabled it to successfully tender for these routes previously and that the routes under the licence were initially regulated to ensure their provision since they were considered potentially non-economic. On the first two points, Skywest looks to have enhanced its standing during the current licence period. Its scheduled charter flights help facilitate Western Australia's economic activity and its contribution to state tourism was recognised and acknowledged as the company was inducted in the Hall of Fame at the 2007 Western Australian Tourism Awards. On the third point, the airline industry in general is faced with a continuingly difficult operating environment – meaning Skywest's ability to combine regular and scheduled charter passengers on the same flight, as well as being in line with Western Australian Government policy, is even more significant and thus the company looks to be in a strong position for the post 2008 structure. Competition – As well as the threat of competition on its current exclusive routes, the bidding for charter contracts is also fiercely competitive. This impacts on Skywest's ability to renew and win such contracts – particularly as various potential competitors have significantly greater financial resources. However, the size of the Western Australia resource sector, Skywest's established brand and reputation and the company's recent track record all suggest the company looks set for continued success in renewing existing and winning new charter contracts. Fuel Costs – The airline industry globally has suffered as a result of high oil prices in recent times. Although such prices have fallen back significantly from their highs, the long-term demand-supply balance suggests prices are likely to increase again in the future. To mitigate this issue Skywest operates a transparent fuel levy policy on ticket sales to the general public and incorporates rise-and-fall provisions in its charter contracts. Pilots current Enterprise Bargaining Agreement soon to expire – The current agreement with the Transport Worker's Union of Australia representing pilots employed by Skywest ends on 8th January 2009. Skywest's recent stable industrial relations record suggests this should not represent a significant threat to the company's operations though. Typical aviation and business risks – As an airline operator, particularly one operating primarily in Australia and being based, and reporting in, Singapore dollars, Skywest faces all manner of inherent risks – for example security and exchange rate risk. The company reported in its latest results statement that the recent drop in the value of the Australian dollar has caused an increase in some costs, which it will endeavour to hedge in future. Significant Shareholdings Skywest Airlines' issued share capital currently consists of 199,500,000 ordinary shares. Those holding more than 3% of the current issued share capital are: Jeff Chatfield (Chairman) 15.04% UBS AG London Branch 12.19% RAB Special Situations (Master) Fund Ltd (via Credit Suisse Client Nominees (UK) Ltd) 3.68% City Natural Resources High Yield Trust Plc (registered in the name of State Street Bank Nominees Ltd) 3.65% Recent Results, Balance Sheet and Cash Flow Skywest announced results for the year ended 30th June 2008 on 13th November. These showed a 14% increase in pre-tax profit to Singapore$14.48 million (£5.04 million) on turnover up over 41% to S$184.20 million (£64.12 million). Basic earnings per share rose from 3.61 cents (1.26p) to 5.22 cents (1.82p) which facilitated a final dividend payment of 0.70 cents (0.24p) per share, taking the dividend for the year as a whole to 1.40 cents (0.49p) per share. This dividend payout is less than initially anticipated but represents the company's cognisance of the economic environment and Skywest re-assured in the results statement that it will "continue to strive to maintain a progressive dividend policy going forward". The balance sheet showed an 11.8% increase in net assets to S$53.11 million (£18.49 million) and an 18.6% increase in net tangible assets to S$35.85 million (£12.48 million) over those at 30th June 2007. Net cash at period end stood at S$6.86 million (£2.39 million) as the company generated a net S$20.99 million (£7.31 million) from operating activities. Overall however there was a cash outflow of S$3.51 million (£1.22 million) principally as a result of an S$18.99 million (£6.61 million) investment in the purchase of property, plant and equipment. Valuation, Forecasts and Conclusion In light of the prevailing conditions in which Skywest is operating, we now forecast pre-tax profit increasing to S$16.5 million on turnover of S$210 million for the current year ending 30th June 2009. The forecast growth is provided by the number of multi-year scheduled charter contracts the company has won since June 2007 and should see basic earnings per share at constant exchange rates increased from 1.82p last year to 2.07p this year. With good earnings visibility provided by the plethora of multi-year contracts with major miners, fears about the threats Skywest faces look over-discounted in a current share price of 8.5p – which puts the company on a historic price earnings multiple of just 4.7 and a prospective current year multiple of 4.1. This, coupled with the company having strong balance sheet support, including net cash of £2.4 million, and what looks to be a secure 5.8% dividend yield limit the downside but fails to recognise the potential for future growth which remains likely given what remains a significant Western Australian resource sector and our belief that on a long-term view commodity prices in general will trade at much high levels than those currently prevailing. Even on a short-term view, given that Skywest is still likely to record material growth in the current year, we regard a price earnings multiple of 10 as far from demanding. This suggests a target price of 20.7p but even at this level the shares would trade on a PEG of 0.73 and offer a yield – even on an unchanged dividend payout - of 2.4%, with this far from dismissible given the interest rate outlook. As such with the shares at 8.5p our stance is buy. Forecast Table Year to 30th June Sales (S$ million) Pre-tax Profit (S$ million) Earnings Per Share (p) Price Earnings Ratio Dividend Per Share (p) Dividend Yield (%) 2007A 130.49 12.70 1.26 6.7 0.73 8.6 2008A 184.20 14.48 1.82 4.7 0.49 5.8 2009E 210.00 16.50 2.07 4.1 0.49 5.8 [/quote] I should declare that SKYW is a corporate client of RSH, for whom I work. Anna Faelten Rivington Street Holdings
Skywest Airlines share price data is direct from the London Stock Exchange
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