Signature Aviation Plc - Operating in a volatile trading environment

Signature Aviation Plc (LON: SIG), formerly known as BBA Aviation PLC is an FTSE 250 listed global FBO (fixed base operation) network Company for Business & General Aviation (B&GA) travellers.

Rationale for Valuation – Avoid at GBX 252.40

• The stock has underperformed the index (FTSE 250) during the last one-year period and delivered a negative return of 18.42% in the last year.
• On leverage front, the debt-equity ratio stood at 1.55x in H1 FY20, which was higher as compared to the industry median of 0.88x, reflecting that the Company is highly leveraged as compared to the industry.
• Moody’s affirmed “Ba3” Long-term credit rating in June 2020, with a negative outlook on SIG.
• In the short-term, the UK market is likely to remain under pressure due to increased market volatility.
• From the technical standpoint, the 50-day simple moving average price is currently at GBX 254.80, which is higher than the current price and reflecting a downtrend in the near term.

Key Risks

• Lower rate of economic growth could impact financial performance.
• The Company will not be able to meet the required cost avoidance and productivity enhancement targets in the life of the transformation plan.
• Moreover, the uncertain crisis of Covid-19 would further affect guidance.

Financial Highlights (for the half-year ended 30 June 2020 (H1 FY20), as on 8 September 2020)

(Source: Company Website)

• The Company witnessed strong liquidity, with total liquidity headroom of more than US$520 million at the end of June 2020, undrawn committed facilities of US$321 million and cash & cash equivalents of US$199.9 million.
• The B&GA (business and general aviation) activity in the US decreased by 29.6% year-on-year in H1 FY20.
• B&GA activity in Europe declined by 35% year on year in H1 FY20.
• In the US charter business segment was recovering.
• Given the COVID-19 related macroeconomic uncertainty, the Board will not be declaring an interim dividend for 2020 and has taken the prudent decision to preserve cash.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

*Peers: Coats Group Plc, Essentra Plc, Equiniti Group Plc, and FDM Group (Holdings) Plc.

*1 US$ = 0.770317 GBP.

Conclusion

In the US market, the business activity was down by 19% year on year in August 2020. The Company anticipates the business performance to be better in the second half of 2020. It is currently managing the cost base prudently. Signature Aviation opened the new Atlanta FOB in July 2020. Further, the Company is focused on reducing the carbon footprint, and it stated that by 2025 it would bring down the carbon emission by 29%. The Company has acquired fixed base operations (FOB) in Geneva and Sion in Switzerland. The Company is going through a transformation phase and investing more towards the quality of service at this crucial time. The stock made a 52-week low and high of GBX 129.40 and GBX 402.04, respectively.

Based on the headwinds faced by the Company, we have given an “Avoid” recommendation on Signature Aviation at the current price of GBX 252.40 (as on 6 October 2020, before the market close at 2:30 PM GMT+1).

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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