Business Overview
Gama Aviation Plc (LON: GMAA) is an industrial transportation company providing services related to maintenance, charter, design and fixed base operations, logistics, special missions and management to its customers from business aviation. The company has operations in the Middle East, Asia, the US and Europe and was founded in the year 1983. The company extend its support to multiple sectors which include infrastructure monitoring, private aviation, air ambulance, police air support and military applications. The company’s aircraft portfolio includes aircraft from various global aviation companies which include BAE Hawker, Beechcraft, Bombardier, Cessna, Dassault, Embraer and Gulfstream. The company’s business is broadly divided into three divisions and services including Air division, Ground division and Global services division.

The current Chairman of the group is Chi Keung (Simon). Marwan Khalek holds the responsibilities of the company’s Chief Executive Officer. Captain Stephen Wright is the current Chief Compliance Officer.

Key Statistics



Top Shareholders

 

Recent News

On 13^th February 2020,Gama Aviation provided an update on Helicopter Contract on order for 3 Airbus H145 helicopters for GBP 20 million as announced on 24^th December 2018. The company has successfully completed the purchase and was funded by term loan of GBP 20 million secured with HSBC.

Litigation Update

On 11th December 2019, Gama Aviation released an update for High Court settlement for Hangar 8 claim. The company reached an agreement between the parties, Mr Dustin Dryden and SPC (SPC Aviation Ltd) to settle the current legal proceedings effective immediately. As per the agreement, the parties will make the full and final settlement. SPC released damages claims totalling around USD 4.4 million against the company, and the company released a counterclaim related to historic trade receivables of around USD 1.3 million against SPC.

Operational Highlights

For the six months period ending 30th June 2019, the company’s air division reported an improvement in the profitability for the period. The company witnessed robust growth from its Europe Ground division, and profit margins improved from the new facility at Bournemouth. The company continue to show growth on an organic basis from its US ground business but due to the start-up costs at Paint Shop in Florida, it impacted the company’s profits. The company faces challenges in the Middle East region but witnessed strong demand for hangarage supports.

Segment Information


(Source: Interim Report, Company Website)
 
The company has divided its business into three reportable segments being Air division, Ground division and Global services division. In the first half of the financial year 2019, the revenue from Air Division and Ground Division have increased by 9.65 per cent and 31.15 per cent, respectively, while the revenue from Global services division declined for the period. The gross profit from Ground division has increased by 28.52 per cent, while the gross profit from the Air Division and Global services division have declined for the period. The company’s adjusted EBIT from Air division, Ground division have increased by 10.13 per cent and 38.93 per cent, respectively, in the H1 FY2019, while adjusted EBIT declined from Global services business for the period. The company also divided its business on the basis of regions in which it operates. The group’s geographic segments include the Middle East, Asia, the US and Europe.

Financial Highlights – H1 Financial Year 2019 (30^th June 2019, USD, million)


(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the company’s revenue increased to USD 121.8 million from USD 103.9 million in H1 FY2018. The gross profit stood at USD 24.1 million in the first half of the financial year 2019 versus USD 20.4 million in H1 FY2018, while the gross margin stood at 19.8 per cent for the period. In H1 of the financial year 2019, the adjusted EBITDA stood at USD 6.4 million versus an adjusted EBITDA of USD 5.9 million in H1 FY2018. The adjusted EBITDA stood at USD 5.6 million on pre- IFRS 16 basis. The company’s adjusted EBIT stood at USD 4.9 million in H1 FY2019 versus an adjusted EBIT of USD 4.7 million on CER basis (Constant exchange rate) in H1 FY2018. The reported EBIT was USD 0.2 million in H1 FY2019 versus reported LBIT of USD 2.7 million in the first half of the financial year 2018. The adjusted PBT (profit before tax) stood at USD 2.9 million in the first half of the financial year 2019 versus an adjusted PBT (profit before tax) of USD 4.4 million in H1 FY2018. The company’s reported LBT (loss before tax) stood at USD 1.8 million in H1 of the financial year 2019 versus a reported LBT (loss before tax) of USD 2.4 million in H1 FY2018. The adjusted PAT (profit after tax) including continuing and discontinued operations stood at USD 2,480 thousand in the first half of the financial year 2019 versus an adjusted PAT (profit after tax) including continuing and discontinued operations of USD 3,061 thousand in H1 FY2018. The company’s reported LAT (loss after tax) including continuing and discontinued operations stood at USD 2,246 thousand in H1 of the financial year 2019 versus a reported LAT (loss after tax) including continuing and discontinued operations of USD 3,735 thousand in H1 FY2018. The adjusted earnings per share stood at 4.6 cents in the first half of the financial year 2019 versus an adjusted earnings per share of 8.6 cents in H1 FY2018. The adjusted earnings per share stood at 4.6 cents on pre- IFRS 16 basis. The reported loss per share stood at 3.5 cents in H1 FY2019 versus a loss per share of 4.6 cents in H1 FY2018. The Cash and cash equivalents balance as on 30th June 2019 stood at USD 2,036 thousand versus USD 10,020 thousand as on 31st December 2018. The total assets as on 30th June 2019 stood at USD 218,577 thousand versus USD 149,919 thousand as on 31st December 2018.

Financial Ratios

 

The reported gross margin in the first half of the Financial Year 2019 increased slightly by 0.1 per cent to 19.8 per cent from 19.7 per cent reported last year for the same period. The reported EBITDA margin in the first half of the Financial Year 2019 increased by 3.9 per cent to 9.5 per cent from 5.6 per cent reported last year for the same period. The reported operating margin in the first half of the Financial Year 2019 remained nil versus a negative operating margin of 2.8 per centreported last year for the same period. Return on equity for the first half of the Financial year 2019 stood at negative 2.7 per cent, which was significantly lower than the industry median of 23.6 per cent. On the liquidity front, Gama AviationPlc’scurrent ratio in H1 FY2019 was lower than the industry median of 1.11, reflecting insufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of the Gama AviationPlc’swas 1.09x, which was lower as compared to the industry median of 1.13x, reflecting that the company is less leveraged as compared to its peers.

Share Price Performance


Daily Chart as at February-18-2020, before the market close (Source: Thomson Reuters)

On February 18, 2020, at the time of writing (before the market close, at 11:47 AM GMT), Gama AviationPlc shares were trading at GBX 54.00, up by 5.88 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 110.00/GBX 47.00. Stock’s average traded volume for 5 days was 23,269.80; 30 days – 11,793.50 and 90 days – 24,051.30. The traded volume (average) for 5 days was up by 97.31 per cent versus 30 days average traded volume. The group’s stock is reflecting significantly lower volatility as against the benchmark index based on the company’s beta of 0.17. The outstanding market capitalisation was around £32.55 million, with a dividend yield of 3.92 per cent.

From the technical standpoint, its shares were trading well above its short-term of 10-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further. Also, 14 day Relative Strength Index of the stock is also hovering around the oversold zone, which is strengthening the upside move.

Valuation Methodology

Method 1: Price to Earnings Approach (NTM)



To compare Gama Aviation Plc withits peers, Price/Earnings multiple has been used. The peers are Global Ports Holdings Plc (NTM Price/Earnings was 4.27), Belships ASA (NTM Price/Earnings was 5.99), Air France KLM SA(NTM Price/Earnings was 6.31), Global Ports Investments Plc (NTM Price/Earnings was 7.43) and Braemar Shipping Services Plc (NTM Price/Earnings was 7.44). The average of Price/Earnings (NTM) of the company’s peers was 6.30x (approx.)

Method 2: Enterprise Value to Sales (NTM)



To compare Gama Aviation Plc withits peers, EV/Sales multiple has been used. The peers are SAS AB (NTM EV/Sales was 0.14), EAC Invest AS (NTM EV/Sales was 0.14), Xpediator Plc (NTM EV/Sales was 0.20), and Air Partner Plc (NTM EV/Sales was 0.29). The average of EV/Sales (NTM) of the company’s peers was 0.198x (approx.)

Valuation Metrics


(Source: London Stock Exchange)
 
As on 31st January 2020, the EV to EBITDA multiple of the GMAA was 4.1x, which was lower as compared with the Industrial Transportation industry of 5.7x, reflecting that the company is trading at a lower multiple as compared to its peers. Gama Aviation Plc’s price to book ratio was 0.6x and remained lower as compared to its industry multiple of 1x.
 

(Source: London Stock Exchange)

The company’s Dividend Yield stood at 3.5 per cent as on 31st January 2020, which was lower as compared with the industry data of 6.4 per cent. Gama Aviation Plc’s price to sales ratio was 0.2x and remained lower as compared to its peers multiple.

Dividend Yield


(Source: Thomson Reuters)

Gama Aviation has a slightly higher dividend yield of 3.92 in comparison with its industry Industrial Transport dividend yield of 3.32.

Growth and Risk Assessments

The company, with its strong geographical presence, is well prepared to gain momentum, which will help in the achievement of operational progress and gain higher market share. The company’s newly opened Bournemouth based maintenance facility is helping company with capacity growth and resources cross-utilisation. The company’s joint-operation with multiple companies in various regions are well-positioned with growth potential. The company’s recent investments made in multiple projects is showing growth potential and will be adding depth and scale to its capabilities. The company would be impacted due to the uncertainty created due to Brexit, as it would result in customer loss and negatively impact the financial performance of the company.

Conclusion

The company has delivered an improved performance in the current period. The company also delivered growth in both Top-line and Bottom-line in the current period. The solid presence in niche infrastructure markets is benefiting the company’s financial and operational performance, primarily in the US and Europe. The company’s main drivers for infrastructure support longer?term growth prospects and remain positive. However, the company is dealing in an industry where competition and price pressure is very high; also, it varies from product to product and geographical market. Though, the group responds to the competition and pressure through the launch of new competitive product and strategical acquisitions. The company is confident that the business model, financial strength position and market-leading positions indicate growth prospects for the company in the future.

Over the course of 5 years (FY13 - FY18), the company’s revenue surged from USD 80.5 million in FY13 to USD 234.8 million in FY18. Compounded annual growth rate (CAGR) stood at 23.87 per cent.

Based on the decent prospects and support from the valuation as done using the above two methods, we have given a “Speculative Buy” recommendation at the closing price of GBX 51.00 (as on 17^th February 2020) with low double-digit upside potential, based on 6.30x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.) and 0.198x NTM EV/sales (approx.) on FY19E sales (approx.).
 

*All forecasted figures and peer information have been taken from the Thomson Reuters. Currency exchange rate taken for 1 USD = 0.77047 GBP.
*The “Speculative Buy” recommendation is valid for the current price as covered in the report (as on 18th February 2020).

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