Dart: in for the long-haul

Boys’ toys

This is going to be a harder profile than usual to write objectively. I love Dart (DTG). It’s a great share for Dads to own. On any tedious trip, by road or by air, something rumbling and impressive, a huge articulated lorry with Fowler Welch-Coolchain emblazoned down the side, or a red and silver Jet2.com plane, gives you the excuse to tell the kids, "we own a bit of that company." Then there are promotional campaigns like this.

Dart carts produce around the country, and people around Europe. It’s a proper business, delivering the food you eat to Tesco Express, and taking you to all points, from Cork to Sharm el Sheikh and Tenerife to Krakow.

Last September I thought Dart was a consistently profitable airline with a smaller road haulage business in rude financial health. It’s not let the Thrifty 30 down. The shares are up about 17%, and it’s paid a small dividend with more to follow.

Dart’s annual report spans a year of recession to March 2010. Unsurprisingly the aviation business, which as well as the airline, operates a packaged tour company, charters aircraft and carries first class mail, suffered as demand for air flights fell and profit from aviation halved.

Fowler Welch-Coolchain, which brought in the remaining 40% of turnover and 55% of profit, had a better year, increasing turnover and profit. Overall, though, profits were down markedly on last year, but not catastrophically, especially in comparison to the ten year average.

When I added Dart I mentioned that despite its lack of debt, it has plenty of other liabilities, primarily deferred income, for example payments from customers for flights they’ve yet to take. This is by far Dart’s biggest source of finance, and its a good one, as it doesn’t have to pay interest on the money (in fact, in better times, it can earn it). But it’s variable, if fewer passengers book flights in say, the second dip of a double dip recession, and costs don’t fall it will have to meet those costs either from its own resources, or by raising money.

In a year of financial stress, Dart’s balance sheet strength, as measured by its ratio of equity to assets rose, near its historical high. I take comfort from this statistic because it means overall the company is less dependent on liabilities for funding (since the balance sheet equation is…

assets = liabilities+ shareholders equity

…equity has increased in importance, which means liabilities have decreased in importance). It’s no fortress of financial strength at that level, but judging by its historical record it looks strong enough.

£35m in non-cancellable operating lease payments due in the next five years, mostly on plant and machinery (presumably planes in the main), is not recorded as a liability on the balance sheet, though, just in a footnote. This is normal accounting practice, but rightly it looks as though that may change. £35m may sound a lot, but it’s fairly small beer. The company’s total liabilities (not including the leases) are £234m, and the value of the planes and engines it owns, £170m, is much greater.

There’s only one thing I’m thinking of when deciding whether a company still fits the Thrifty 30 template: Is it cheap, strong and competitive? OK, it’s three things really, and I still think Dart is all of them. At just under ten times ten year average earnings, the price is still (just) in bargain territory. Its F_Score of six out of nine shows strength, especially considering it was a year of recession, it’s remained profitable, and raised the dividend.

Meanwhile, Dart seems to have sidestepped a cloud of volcanic ash, the distribution business is expanding, the company has salted away cash from healthy-looking advanced bookings, and expects to grow this year.

In February, Mark Laurence, a non-executive director, fund manager, and former equity analyst, bought 100,000 shares at 45p, 9p less than the price when I added them to the portfolio. I think he got a bargain. I’d add Dart at the current price of 66p, if I hadn’t already done it.

See, I told you it would be difficult to be objective.

Vroom.

-

Thrifty 30 updates

The current Thrifty 30 portfolio

Engineering contractor T Clarke buys DG Robson Mechanical Services. More diversification.