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yes it was very easy trade this morning and the spread was ok.
Easy trade here on the back of latest Govt quarantine rules / testing on return to the country.
Gla
G
TF - different Company - different circs. though the CINE rns today confirms - "Agreed bank covenant waivers until June 2022"
We live in unusual times.
G
Hi TF - the base case figures and amount of cash burn are not my personal analysis, and I wouldn't wish to make such a claim
The Analysis that I have posted is drawn directly from the interim statement dated the 4th November and is freely available for all to read.
I like to play with a straight bat and I feel it's only reasonable to debate matters based on info provided.
So those are the figures reported by the BOD, not mine.
The possible monthly cash burn was known when the RCF's and placing raise where TOSCA pushed more monies in was arranged.
Again we have no knowledge of the RCF covenants but generally speaking Banks do prefer to see cash flowing in and out of overdraft facilities, though if there is a clear plan in place ( ie the sale of non core assets or the eventual sale of the Energy Division ) then they may well be more relaxed.
I would say that over time, any proportion of an overdraft that does not return to credit with monthly cash flow, would be considered longer term debt - and there could be justification in re classing that proportion into a long term debt or loan, depending on serviceability in terms of interest and capital reductions.
All we can do is watch wait and speculate. What will come first
- positive cash flow
- asset sales
- asset buy in
- debt restructuring ( through potential placing )
In the meantime - I'm looking for my next trading opportunity, will it be on a dip, or a sale of Stobart Air, or maybe on the back of vaccine / testing news.
Gla
G
Hi TF - my understanding we have the original RCF at £80m and the second additional one was agreed at £40m, that's what has been presented in various RNS.
As you know the placing was agreed and designed to clear all Bank debt back in June, which was achieved.
More recent RNS give base and worst cash burn calculations with debt headroom figures to Feb 2022.
(The base case forecasts indicate that the Group will have facility headroom of c.£47m at February 2022 ).
Again terms and covenants, as would be expected are not disclosed as far as I am aware.
Agree with you on exiting Stobart Air, though I'd suggest the orderly sale of the Energy Division is at least 12 months away, the BOD will want to have it back in fine fighting fettle, before looking to achieve a sale.
Don't dismiss the "strange concept" that both the Energy Division and the Aviation Division can create revenues, very quickly if external headwinds can be overcome lol.
That's the fun of being here, never a dull day.
Yes many are under water including all Institutional Investors, but to date, no movement from them.
Others are very much sitting on decent rises from the 18p level.
Here's a thought - round numbers but anyone with £1k in here at a £1, and underwater, could have put £2k in on a second trade at 18p recently and have been up and in profit overall at today's closing price of 26p.
Sure some took the kind opportunity offered, to recoup.
TBH - i was hoping for a dip opportunity on the loss of the Aer Lingus tender, but as yet the market has not been kind to me, with the positive effect of vaccine news. Still tomorrow's another day.
Got to be in it to win it lol
gla
G
TF - With debentures in place i'm guessing that when asset sales come to pass, they will be subject to conditions therein.
The two Division are presently not producing sufficient revenues, that's a given. Aviation is pretty much shut down. Though the Energy Division is getting back on its feet.
As to the future - much depends on planes flying again for the Aviation Division., which is not something the BOD can control.
I don't have access to any conditions attached to the RCF's, I'm guessing you don't either.
I suspect that the RCF's are secured by standard debentures, so asset sales do require agreement from Banker's.
I would have though that de risking the business by the sale of Stobart Air would be generally welcomed by all parties.
Small non core assets sales £10m - £40m , to create liquidity may be acceptable to all parties.
Any sale of the Energy Division or a % sale of Southend will very likely, involve a restructure of RCF's and that would be fully expected.
Not sure what you consider a substantial RCF, though the facilities would have been agreed with "worst case" in mind.
I'd say nothing is blindingly obvious here lol .
G
TF - 2020 could and should have been the year of transformation for STOB. It came into the year having spent considerable monies on developing the Energy Division and Southend. Both were set up for a strong year and future. Regrettably Covid came along and scuppered things. No use crying over split milk. It is what it is, and the BOD have to deal and play the cards in their hands.
It could be said that STOB took on two large projects from a relatively small capital base, a company with a higher capital structure would have probably have found it easier to navigate present challenges.
You mention the naughty sister, with hindsight STOB played a blinder here - back in 2017 it held a 49% stake in ESL, and through regular sell off of its ho!ding cumulating in the bond deal, it has managed to pick up considerable cash funds, which in part have been utilised towards capex. If it had sat on its ESL holding you might have a case for challenging why. Fortunately it didn't.
To me if you are riding a raft down a fast flowing river there is little point worrying about the raging waterfall around the corner, first you've to avoid the rocks lol. So I'll say once again STOB needs to deal with the priorities that it can effect. First a sale of Stobart Air. Second get the Energy Division back up to full throttle.
That said any solutions to flying over coming months will reduce Stobart Air cash burn quite considerably going forward.
Turning to an approach to a % buy in at Southend, by someone with deep pockets, that would need approval by it's Bankers. The RCF's will be secured by way of Debenture with charges over fixed assets. So any introduction of funds from such a source would almost certainly involve a reduction in any RCF borrowing at the time + an amendment to ongoing facilities.
With valuable assets STOB has options to work through present headwinds. Though it will likely be an entertaining year or do. How that will impact pi's is open to question.
Gla
G
Hi Birddog - so we here we are - me with my free shares and you with your historic investment, not large as you say, but one that you have given up on recovering any funds back. it's more emotional investment now! and I understand that.
I'm happy if you don't want to test the BOD's claim that 2.5m passengers represents their projected future break even position at Southend. Much depends on what factors go into calculating that figure. But any info you have to counter their claim would be useful to me when planning my next trade.
You say you'd rather rely on your "desk calculator" as its never lied to you.
What did it say to you at the time you decided on your investment here ? Perhaps there is there is an argument to suggest that it let you down on that occasion my friend. May I ask what drew you to buy into the STOB story, btw I'm guessing the various outcomes and the impact on the sp have done much to dampen your spirits here.
Saw your figures for context regarding Southend yr end Feb19 figures. ( your post 15.55 )
You didn't mention the £40M cost of sales figure for that particular yr, which had an impact on the figures you presented.
For further context the Feb 18 figures based on much lower passenger no's were:
Revenues - £21.1M
Gross Profit - £17.5M
Loss for yr - £6.5M
I agree if the operating costs were to stick at the Feb 19 levels then you'd have a case. If they revert closer to the previous years costs, with passenger numbers up at 2.5m then perhaps the BOD's statement has some credence.
STOB has no control over Covid, all it can do is aim to manage cash burn, and focus on what it can effect, so priority one is the sale of Stobart Air, and priority two is to get the Energy Division running at full throttle.
Its down to external factors as to whether passenger flights will return next year.
It's going to be tight lol.
gla
G
For some context here, the FY end Feb19 saw revenue of £26.5m, with a GP of -£13.5m and a NP of -£38m. This based on 1.1m passengers. This is for Southend Airport only, not the rest of the aviation division.
Hi Gerry - Not sure it's for me to present their numbers to people. That's for the BOD to do. I have a very simple calculator on my desk. In all the years I've had it, it's never lied to me.
Economies of scale? - It seems it's diseconomy of scale in this case. The more passenger they get, the more they lose. Compare the STOB aviation division summer 19 figures to 2020.
You refer to capex as if it is a P&L item. That will be on the BS with only interest and depreciation finding it's way to the P&L.
Ultimately, I think where we would both agree is that STOB do not have the ability to earn their way of the hole they're in. It's their ability to borrow more that will buy them some time. It's whether anyone has the appetite to lend to them. My opinion only, E&OE and all that.
Birddog -The 2.5m passenger break even figure quoted by the BOD in a recent RNS, is based on very limited ongoing capex. It's a forward looking statement.
In previous years considerable sums where spent on the airport to create and develop what we now have at Southend. You get how that impacts the bottom line I'm sure.
I'm clearly not summarising what the BOD have said very well and for that I'm sorry.
Maybe you'd like to pull together the YE Feb 2020 reported figures, due out soon. Add in the extra 400K passengers, by providing a revenue value for them, then calculate the variable costs for the additional passengers on a pro rata basis. Not sure how you are going to factor in economies of scale into your figures though.
Following that exercise please ensure you strip out the cost lines that the BOD believe will not be there in future.
You'll then be in a position to present to this bb, your recalculated version, of the accounts, and we'll be able digest your figures, and debate them.
Once we have reviewed your workings and come to an reasoned agreement to their accuracy, we can look to see if what the BOD is saying has merit.
gla
G
"The BOD has stated that Southend's break even figure is 2.5m passenger's going forward. Pretty sure I've posted hat to you before."
The accounts for Southend Airport to YE Feb 2020 will be out by a week Monday. This will include the whole of the summer 2019 period and with 2.1m passengers. If break even is 2.5m passengers, then it should be an easy calculation as to what the remaining 400k passengers need to bring in for it to be break even.
Birddog - we can only speculate, atm.
Let's see what comes to pass, don't be surprised if a deal that suits both parties comes to place and I won't be surprised if it doesn't lol.
G
Birddog - I've tried to help you here before on the point you raise, but when I do you pass it by.
STOB have undertaken a massive infrastructure project at Southend with a relatively limited capital base. Perhaps it was a huge project to undertake for such a small company, but to its credit it got there. Without Covid 2020 would likely have been the year when all the hard work and funds invested started to bear fruit, regrettably circumstances overtook it.
I can only ask you once again to review the accounts for Southend and try to project forward to a position where revenues were not eaten up by necessary capital expenditure on getting the airport from where it was to where it is now.
Capex has been substantial over recent years and the infrastructure spend does ultimately feed down into the bottom line each year. The BOD has stated that Southend's break even figure is 2.5m passenger's going forward. Pretty sure I've posted hat to you before.
If you can or are able to project forward you'll probably be able to understand why the 25% offer back in the early spring came forward and why that valued it around £800m.
As things stand STOB are facing monthly cash burn, but that does not take away from the future prospects at Southend, the relevant question perhaps is - who will actually own it over the coming years.
The Aer Lingus tender, and Stobart Air is a sale date issue, tbh when the planes were flying it was far less damaging though the historic lease agreements are challenging.
Again here Emerald see value in business - hence their tender win.
I'm not looking at this from a shareholder prospective, you understand, purely looking at the business case at Southend in particular over the coming 10 - 20 years. As to who will ultimately own it - well that's less certain.
G
Totally agree Gerry - There is a logic to a simple transfer of aircraft and people. The elephant in the room is the liabilities on those leases. It would make no sense for Emerald to take that on when they don't need to. STOB have an out via the break clause, but that's a hefty amount cash required. And once they have no contract, and no aircraft to fly then there is no way of ever recovering the losses in Stobart Air. In the meantime they have to try and survive the next 2 years with it in place and the losses and cash burn that will create. It is possible that Emerald already have the infrastructure plan in the background ready to pounce if and when STOB go to the wall. The circling vulture.
Your suggestion relies heavily on a level decency and humanity that I'm not sure exists in this sector!
Sorry for auto spell mistakes lol
G
TF - that's the way I see it on reflection - often the simplest solution for both parties.
Terms can be negotiated - not sure they will be ideal for STOB but it makes some sense.
Stobart Air employees somewhere around 600 staff, have seen figures quoted in a range between 570 - 650. They are skilled on the job and fully trained.
Birddog do we know how many trained staff Emerald has on its books atm ? It doesn't need the team in place till the start of 2023.
Similarly it doesn't need the planes till the same time. Not sure it would be looking to get into any up front lease deal until it actually needs to.
STOB has to pay lease payments in 2021 & 2022 then the break clause. If planes fig again the monthly cash burn is much less than it is atm.
I know our Govt sold a ferry contract to a company without ferries but in Are Lingus we are dealing with people with sense not stupidity lol.
Would you not say there is a case for a seamless transfer of assets here - planes and staff. Providing a deal can be struck that works for both sides.
STOB want out - Emerald want in.
STOB want to focus on Airports and Aviation Services.
Anything could happen here, let's wait and see.
Gla
G
TF - I gave up a long time ago on recovering anything from this stock. Not heavily invested so it's more emotional investment now!
They just seem in such a pickle - Losing money consistently across the board, with or without covid, losing customers, not only due to Covid - Lingus isn't covid related surely? A lot of positive talk from the board, but the numbers speak for themselves. The cold facts are that they lost less money from the aviation division in the Covid ravaged summer of 2020 than they did in 2019 when they had record numbers of passengers at Southend. It's beyond my comprehension of business and especially my limited knowledge of corporate investment how this is possibly an investable business. The only investment / borrowings I can see they will get is from those already deep into the game trying to hoist it back somehow. No one wants to be the one to turn the lights out and commit to forever losing that capital. That might be the saving grace?
Emerald, with the contract with Lingus in their pocket, will be able to go to a myriad of lessors or even to ATR direct and get a very favourable deal, and maybe even mirrored to the Lingus terms.
Birddog - you say there are 100's of these planes out there on very favourable terms.
Am not asking for a long list , but maybe if you could provide details of say 3 possible lease deals that Emerald could strike.
Would it not be the case that any planes available - already in service and not required by the existing airline, would in many cases be subject to similar lease commitments facing STOB ?
Again I have no detailed knowledge here.
G
Thames - I highlighted some of the comments made by WB in the media responses and RNS to TF yesterday, and wondered if there could be options available here to both Emerald and STOB.
Have no more info or knowledge than is available all on platforms out there.
Birddog - agree there will be planes floating about that need new homes. I'm guessing they will all come with long term lease arrangements. I suspect better new deals could be available. Do you have figures available on possible lease deals on the correct airplanes so we can crunch some numbers.
Btw - don't see why Emeralds would want to merely take over the existing STOB leases - unless if course a deal could be made which benefits both parties. In such a possible deal I'd expect STOB to take a short term hit to escape a longer term commitment.
I've no info here just putting out a possible way forward, amongst many.
I believe Stobart has several hundred trained qualify staff. Would make sense for Emerald to look to secure their employment. Again only throwing thoughts out there.
Gla
G
I can't see why taking on the Stobart Air / Propius legacy debt and liabilities would make sense to Emerald? Just because they have the ATRs? - There are hundreds of these aircraft available on very favourable terms. The whole benefit of Emerald is that it is a clean slate in a buyers market. Why riddle it with someone else's legacy debt and liabilities. There is also the fact that Stobart still have the contractual obligations to fulfil through 21 and 22. If this generates profit then great, but in the current and predicted environment it's hard to see that this will be the case. So this will generate more losses and more cash burn along the way.
Looks like Emerald may be toying with taking the Stobart Air team as they talk of 15 x ATR-72 operation, that would make sense all round, just the need to sell now until Jan 2023 that needs squaring?: https://www.irishtimes.com/business/transport-and-tourism/aer-lingus-poised-to-award-regional-contract-to-mccarthy-s-emerald-airlines-1.4409692
I think Fear of missing out will drive the FTSE 100 higher this week as well.
Gerry,
Looks like it mate, i don't need to buy me self a book to read this week, lol