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"Gama Aviation shares hit turbulence Simon Thompson Shareholders in Aim-traded Gama Aviation (GMAA:206p) suffered a bout of turbulence after the operator of privately owned jet aircraft reported a flat trading performance in the first five months of the 2018 financial year at its annual meeting. Analysts at broking house WH Ireland reined back their full-year pre-tax profit forecasts from $21.8m (�16.3m) to $19.9m, representing 16 per cent growth on last year but well behind the 27 per cent growth I had envisaged when I last suggested buying the shares at 257p (�Small-cap earnings beats�, 21 Mar 2018) when Gama reported a near 25 per cent uplift in its 2017 underlying pre-tax profit to $17.1m. The reason for the downgrade is mainly due to a more challenging trading environment for Gama�s European ground services division. On the plus side, its US air operation continues to report robust trading, reaping the benefits of the fleet joint venture with BBA Aviation (BBA), and the US ground division continues to pull in new clients and produce strong organic revenue growth. Importantly, the company has the firepower to accelerate its plans in its higher growth Asian and the US operations, having raised �48m in a placing at 245p a share in February, a fundraising heavily backed by an affiliate of the mighty Hutchinson Whampoa (China), a Hong Kong-based conglomerate operating across a diverse number of sectors including the provision of aircraft maintenance and logistic services. Hutchinson now owns 21 per cent of Gama�s enlarged share capital of 63.5m shares. Around $19.8m (�14.2m) of the capital funded the acquisition of Hutchinson�s Hong Kong aviation interests, including a 20 per cent stake in China Aircraft Services, a company founded in 1995 and one of only three operators that provide maintenance, repair and overhaul aviation services at Hong Kong International Airport. I understand that the collaboration is "making good progress�. In the Middle East, Gama is using $5m of the fundraising as seed capital to develop a new $45m aviation centre at Sharjah International Airport. It makes sense to do so in light of capacity constraints at Dubai International Airport. Sharjah is well located to be used as a platform for expansion in the Middle East, and is a lower cost base, too. The aviation centre is on track to open in the fourth quarter of 2019. A further $10m from the fundraise is being used to expand hangar capacity and tooling and equipment at Gama�s fast-growing operations on the east and west coast of the US, where Gama operates from 14 locations and manages a fleet of 200 aircraft. Growth has been held back there by capacity constraints, an issue the new capital addresses, as well as providing cross-selling opportunities on the maintenance side of the business. The directors confirm that they �expect to add base maintenance capacity on
from today's Questor column in the Telegraph: Https://www.telegraph.co.uk/investing/shares/questor-inheritance-tax-portfolio-seven-new-additions/ "Update: Gama Aviation Shares in Gama, the aviation services group, fell by 12.2pc on Tuesday after it said trading this year was �flat�. The shares are now 15.5pc below where we tipped them for this portfolio in January. Nick Hawthorn, of Downing, which owns about 6pc of Gama, said �we are not sellers, we think this is a great quality business with a lot of potential over the long term�. He said the update had been poorly worded and that a consequent reduction in one broker�s earnings expectations had hit the shares. �The US is trading very well, there are cost efficiencies ongoing [but] European maintenance contracts are expected to come through in the second half of the year,� Hawthorn said. �This [delay] led to the caution in the trading statement. �There is execution risk but we are comfortable with expectations for the full-year outcome. It is worth remembering that this puts the company on a multiple of less than 8 times 2019 earnings. It still has more than $25m (�18.6m) to deploy on earnings-accretive deals.� He added: �There is work to do on market perception and sentiment, which was acknowledged in the update. The company is fully funded to deliver on its strategy. The management team has been bolstered and contracts have been delayed but not lost during the period.� Hold."
WH Ireland have revised their forecasts as follows: this year : 26.4c EPS, or 19.8p EPS next year : 39.8c EPS, or 29.8p EPS They also see a 360p fair value price target. They conclude: "Fundamentally, we believe that Gama is positioned well to grow in highly fragmented markets, whilst the valuation remains undemanding."
Flat year-on-year trading, with the USA performing strongly, Europe variable and the Middle East weak. A mixed and disappointing update. Nevertheless, the share price is already on such a low rating that from here there remains substantial upside and only minimal downside imho. The litigation side continues to be positive, with GMAA still expecting net cash inflows and a majority already settled and inactive with presumably immaterial results. The outlook for Europe is improving, with "high quality contract wins for base maintenance and design the full effect of which will be seen in the second half of the year". The forward outlook similarly suggests that positive vibes can be inferred: "I am pleased with the progress that we are making in implementing our 2018 strategic plan which is tailored to ensure that, through a mix of organic investments and acquisitions, each division in the Group receives the necessary support to allow it to address its specific growth opportunities. With the strengthened leadership team now established, we are even better equipped to deliver on our strategic objectives."
Bearing in mind the following outlook from the prelims, plus the �50m contract extension, I'm hopeful it'll be nicely positive: "Current trading in line with management expectations; company well placed to achieve its expectations for the current year". Good to see an �11k buy at 227p just now - 2p above the 225p published offer price.
This looks like a large slug of work coming GMAA's way due to the need for regulatory compliance in installing Automatic Dependant Surveillance Broadcast technology: Http://aviationweek.com/ebace-2018/mros-dealers-and-brokers-warn-ads-b-logjam "MROs, Dealers And Brokers Warn Of ADS-B Logjam May 30, 2018 Gama Aviation is the latest company to add its voice to the growing chorus of concern that the business-aviation community is flirting with disaster if it continues to ignore the implications of the U.S.�s 2020 deadline for ADS-B conversion/installation. Duncan Daines, the chief marketing officer for Gama�s Oxford Airport-based London ground MRO unit, warns that operators face increased costs or having their jets grounded if they do not get the work scheduled soon. Experts note there are more aircraft remaining to be outfitted than there are MRO slots available before the deadline. Failure to comply will result in jets being unable to fly in most classes of North American airspace, limiting their utility so extensively it will effectively mean they are grounded. �We don�t think operators are taking the 2020 ADS-B mandate as seriously they should,� Daines says. �Exactly the same is happening in the U.S: it�s delay, delay, delay. �This is a mandate that we do not believe is going to change. Operators need to take action now.� Clearly, for a company such as Gama, which will fit Honeywell-supplied equipment, there is an obvious business interest in heightening a perceived sense of urgency. �It does, as an MRO, provide us with a potentially useful market,� Daines says. Yet Daines�s warning cannot be dismissed as an attempt to drum up business through instilling fear or panic. It is, he argues, the product of how many jets the company knows need to have the work done, how few have so far been booked in for the necessary upgrade, and how long conversion takes to carry out. �There are too many aircraft, not enough maintenance slots, not enough engineers, and not enough parts. It just puts pressure on the system, and when you put pressure on the system, prices go up. etc"
Looking good chart-wise, with new recent highs now. Hopefully back to 260p as a first step before making headway to the broker targets of 370p and thereabouts.
Terrific news - which just adds to GMAA's already high future earnings visibility: https://www.investegate.co.uk/gama-aviation-plc--gmaa-/rns/-50-million-air-ambulance-contract-extension/201805310700037523P/ "�50 Million Air Ambulance Contract Extension Gama Aviation Plc, one of the world's largest business aviation services providers is pleased to announce the extension of its seven-year Scottish Ambulance Service contract. The contract extension commences in June 2020 for a further period of three years and is expected to be worth in the region of �50 million over that period. Marwan Khalek, Group Chief Executive said: "I am delighted that we have been awarded this contract extension. Our work with the Scottish Ambulance Service over nearly three decades demonstrates the effectiveness of our business model, supplying both Air and Ground support to deliver mission-critical services where high availability and rapid response times are vital. This is testament to the dedication and expertise of our people, resulting in an excellent track record for delivery that has created an enduring relationship with accompanying contracted revenue streams. The forward visibility these contracts afford allows us to further enhance our support to the Service through the provision of state-of-the-art facilities in Glasgow and Aberdeen." etc"
£50m contract extension from the Scottish air ambulance, provides good visibility of earnings
they certainly look to be building a winning team, happy holder.
Thoroughly agree. Although he's not joining until September I'm sure he will have an input into any acquisitions. this has the makings of a very good year.
Encouraging to see another brick in the wall just announced, with the appointment of a strong-looking new CFO with extensive experience in much larger businesses than GMAA: Https://www.investegate.co.uk/gama-aviation-plc--gmaa-/rns/appointment-of-chief-financial-officer/201805300820016530P/
Downing Micro-Caps also had this to say further down today's report which I missed first time around :o)) "Gama Aviation PLC (Gama) Gama is a global business aviation service provider, headquartered at Farnborough airport. It focuses on air operations (business aircraft management, special missions and charter of business aircraft) and ground operations (engineering, design, software, maintenance, repair and overhaul (MRO), passenger handling and consultancy). Investment case � Organic growth: we expect natural growth to be aided by the increasing cost of compliance which naturally favours players with scale, crowding out the smaller, localised operators that characterise the business aviation market. We also expect margin growth through operational efficiencies and new higher margin activities. � Consolidation: Gama is one of the top three global players in the sector. Owing to the crowding out mentioned above, the fragmented market, and Gama's public listing, we believe that the company has the potential to be the consolidator of the market. � Re-rating: underlying the operational and market opportunity, we believe that the business is misunderstood and undervalued by the market. Key to a rerating will be Gama's ability to closely control working capital and consistently generate free cash flow. These are aspects which we believe are improving with every successive reporting period."
Downing Micro-Cap investment Trust - who have a �5.4m stake in GMAA - reported results this morning, and they're rather please with how GMAA are doing so far: Https://www.investegate.co.uk/down-microcap-invtst--dsm-/rns/final-results/201805240700091036P/ "Gama is delivering exactly on our investment case. In February 2018, the company raised �48 million to deliver a number of organic growth initiatives in Asia, the Middle East, and the US, as well as further inorganic growth initiatives. As part of this, it also gained a material strategic investor in Hutchison Capital Holdings Limited who now own 21% of the equity. The Board was also strengthened in the period. We believe that these growth initiatives could be transformational for the business in the mid to long term. Post period end, the business posted a positive set of full year results. The focus has been on free cash flow generation and, pleasingly, Gama generated US$14 million in 2017. Operating margins continue to improve across the segments in line with management's long-term targets of 5% in the Air division and 20% in the Ground division."
Given that GMAA have a longstanding and successful FBO at Sharjah airport, this report from Sharjah reads well given the expansion, increased number of passengers etc (with a brief name check for GMAA): Https://www.albawaba.com/business/pr/sharjah-airport-authority-unveils-new-logo-identity-and-celebrates-employees-and-strateg Excerpts: "H.E Sheikh Faisal bin Sauod Al Qassimi, Director of Sharjah Airport Authority, spoke and presented a video which revealed the final shape of Sharjah International Airport after the expansion. The program was followed by the segment �Journey to the Top�, which included a video that featured the airport�s prominent figures and showcased the significant achievements during the past year and during the first quarter of 2018. An LED interactive show unveiled the airport�s new logo and identity, prior to the event�s conclusion, which honored the authority employees and strategic partners." "H.E Sheikh Faisal bin Sauod Al Qassimi, Director of Sharjah Airport Authority.....reviewed SIA�s most prominent achievements during the past year, emphasizing the number of passengers who traveled through SIA in 2017 increased to 11.4 million, while the airport recorded 76 thousand takeoff and landing movements, a success, in light of the regional and global challenges facing the aviation sector. He also pointed out that SIA benefited from its geographical location and proximity to many seaports in raising air traffic."
With the (hopefully successful) conclusion of the outstanding legal matters, I can't see why this should be languishing on a forward PE of about 9. I note from Stocko that the broker consensus is 310p, this is surely a more realistic SP than where it languishes at present. There's a dividend due while we wait for the SP to re-rate (goes ex-divi on 28/06/18 for 2.75p per share) - I really feel we have a compelling buy at these levels. Will be adding on any further dips. Disc: long from 208p and 211p
Excellent..... Https://www.gamaaviation.com/news/article/gama-aviation-europe-adds-bombardier-global-6000-managed-fleet/ "11th May 2018 Gama Aviation Europe adds Bombardier Global 6000 to its managed fleet. European Air team add Bombardier Global 6000 management contract after competitive bid. The aircraft represents the third Global 6000 to enter the fleet since the start of the year. Farnborough, 11th May 2018 � Gama Aviation, the global business aviation services company, is pleased to announce the addition of a Bombardier Global 6000 to its European fleet. The announcement follows the recent introduction of two Global 6000�s into the Asia fleet. Gama Aviation�s ability to support the aircraft locally and internationally were amongst the defining factors in the client�s final decision. Although primarily for private use, the aircraft will be available on a limited basis for charter out of Farnborough, representing one of the newest Global 6000�s within the UK charter fleet. Mark Gascoigne, Managing Director, Europe Air said: �I�m delighted that our new client selected us after a hard-fought process. We offered a simple solution, that combines our high level of local client service with our ability to leverage our unique global scale, breadth and depth to support the aircraft wherever and whenever the owner flies.�
Positive trading statement today from BBA, particularly re Signature, whose revenues are up 13.9% - which should reflect well on GMAA's merged Signature business in the USA: Https://www.investegate.co.uk/bba-aviation-plc--bba-/rns/bba-aviation-plc---trading-update/201805110700027318N/ OT : compadre, the shortage of available GMAA shares to buy was noted on ADVFN.
On which other boards would these be? 227 being paid all morning and still available by the looks of it
Good start to the week, and moving up smoothly again. Encouraging to hear from posters on other bulletin boards that shares are currently in short supply and difficult to find in reasonable quantities..
Sure have, and a nice reminder of the investment case if I were to need a recap. Still below the 245p so hope we have the volume to kick on again this week
In case anyone hasn't read the rest of Downing Microcap's April newsletter, it's well worth doing so, as these other extracts make clear: Https://www.downing.co.uk/sites/default/files/dsm_investor_letter_april_2018.pdf "Follow on investment: Gama Aviation We wrote to investors at the end of February 2018 outlining our assessment of Gama�s newly announced placing (this text is copied in the appendix for reference). Downing participated in this placing, contributing over �3.2 million across client funds. The shares were placed at 245p, a 7.5% discount to the price around the roadshow. As a result, Downing client funds now own 6.4% of the equity and Gama comprises 9.8% of the Trust. Since the placing, Gama has announced a positive set of full year results for 2017. We discuss these in greater detail from page seven." "Gama Aviation n the lead up to reporting results, we noted strong performance from Gama�s US joint venture partner, Gama Aviation Signature Aircraft Management, a new contract win, and a number of new additions to the fleet in the US and Asia. Richard Kearsey also joined the Board from the Close Brothers Aviation division to head up M&A at Gama. Throughout his 27 years� in aviation financing with Close, Richard has likely had direct or indirect experience with most operators in the industry and therefore makes a strong addition to the business. The full year results were positive, with $14 million of free cash flow generated and growth in both the Air and Ground divisions. We like the contracted nature of the Air business where Gama earns income through management fees rather than a margin on the sale of consumables, such as fuel. This was evident in the Asia division where there was a decline in revenue, as two aircrafts flew very little in the period (therefore generating less revenue on pass through costs), but gross profits increased as Gama earned more in management fees through fleet growth. We think that this demonstrates the resilience of the model as even if assets aren�t flying they are still generating drop through profit. Once signed into the fleet these assets also tend to be fairly sticky. The story is similar on the higher margin Ground business where regulatory drivers mandate maintenance based on flying hours or calendar days, whichever comes first. This provides good visibility, alongside regulatory cycles which drive additional maintenance work. 2018 will be a pivotal year for the business as management embark on several organic and inorganic growth opportunities. We also hope to see operating margins grow further as the model matures internationally. This sets the stage for 2019 and beyond, from which we expect the business to move to a new level of profitability and cash generation as management deploy the �48 million from February�s fundraise. We expect that underlying free cash flow could double in this time once
Good to see buyers paying the full 217p offer now. Continuing to tick up on small volumes, so looking good at present.
Here we go!
Good to see the buying price now moved up to the full 212p offer, after over �130,000 of buys today (every trade a buy). Hopefully this is an indication that the seller is out or nearly out.