Cube Midcap Report (27 July 2020) – Flying makes a slow comeback

Cube Midcap Report (27 July 2020) – Flying makes a slow comeback

Good morning!

There’s not much of interest on the RNS this morning, so this will be a quick report and then I’m going to spend this afternoon working on my educational seminars which are coming up in September. Live-streaming will be back tomorrow.

I am going to quickly look at the updates from:

  • Signature Aviation
  • Ryanair
  • Kainos Group

Those of you who invest in resources might also find Joel’s latest piece to be of interest, in which he screens for the next big cash generator in the oil and gas space.

Finished at 3pm.

Signature Aviation

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Market cap £1.8 billion
RNS Trading Statement
Writer disclosure No position.

Providing services to the aviation industry is an unlucky place to be this year. SIG runs fixed-base operators at airports.

I noted in a previous article that the company’s revenues were down 72% in April.

The cumulative effect of the crisis has resulted in a 31% reduction in its H1 like-for-like revenues. On an unadjusted basis, revenues are down 38%.

Flying activity is gradually coming back. It was only down 32% for June (vs. down 77% in April). US staff have been recalled from furlough with the help of government support.

Balance sheet

SIG reports that it was cash flow positive in Q2 – a big achievement which will have been achieved through pulling lots of different levers.

I remarked in May that it must be feeling very positive about its balance sheet, as it hadn’t asked for a covenant waiver from its lending banks.

Today I have to retract that statement, as SIG reveals that it has agreed a “precautionary” waiver through June 2021.

Despite that, it is confident enough to expand with the acquisition of two fixed-based operators in Switzerland. I don’t see a price given for this deal.

Borrowings from the company’s RCF at the end of June were $79 million, from a $400 million facility. The company had cash of $200 million.

Liquidity headroom is therefore enormous.

As of December 2019, SIG also had $1,150 million of bonds outstanding. They expire between 2026 and 2028.

Outlook – no guidance. The company will review dividend payments over time.

My view

I tend not to invest in support services – I prefer high-margin businesses with lower labour intensity. But SIG does give an insight into the state of the aviation industry and wider economic forces.

The 32% reduction in flying activity for June is not as bad as I would personally have expected. Can we conclude that the industry is slowly coming back, at least in the US?



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Market cap €11.2 billion
RNS 1st Quarter Results
Writer disclosure No position.

I’ve decided to add Ryanair to this report, seeing as it ties in with SIG and is fairly interesting in its own right!


The situation is perhaps more serious on this side of the Atlantic:

  • over 99% of the fleet grounded, traffic down by 99%
  • revenue down by 95%
  • cash maintained at €3.9 billion (there’s also €1.9 billion in current debt and €2.4 billion in non-current bonds).
  • started flying again in late June.

There is a loss of €185 million (Q1 last year: profit of €243 million), as costs could only be reduced by 85% (vs. the 95% revenue decline).


The schedule will hopefully reach 40% of its normal level in July, then 60% in August and 70% in September.

Personally, I should have used Ryanair or IAG on a number of occasions in 2020, both for business and pleasure. Instead, this will probably be the first year since I don’t know when without a flight somewhere!

There are “extensive health measures” on flights now, and in my book they are just one more set of reasons not to fly. A shame.

Ryanair points to the closure of rivals such as Flybe and Germanwings, and the “multi-billion flood of illegal State Aid from EU Governments to their flag carriers”. Ryanair expects European travel to be depressed for at least the next 2 or 3 years. This conforms with my own expectations, which I have been gradually putting back – flying won’t be “normal” again in the short-term, and the picture of the future recovery is very uncertain.

Despite being forced to compete against flag carriers which Ryanair thinks will be selling below cost, it does see an opportunity to take advantage of lower costs at airports and in relation to aircraft.

Unions have agreed to “modest” pay cuts (not sure if they would agree).

Boeing MAX – Ryanair is planning to accept delivery of this new aircraft before the end of 2020, much later than originally planned.

Before I fly on one of these aircraft I plan to read some more about the safety features, the circumstances surrounding the accidents which occurred, and the steps which have been taken since then. I don’t think I’d be completely ready to fly on them, before doing that research.

Brexit – due to EU protectionism, the voting rights of Ryanair’s non-EU shareholders (i.e. UK shareholders) may be restricted. This could limit Ryanair’s valuation, as UK activist investors will be unable to do very much with the shares.


Ryanair’s “biggest fear” is a 2nd wave of Covid cases in late Autumn, to go along with the normal flu season. Ryanair continues to hope that lockdowns and EU flight restrictions can be avoided.

There is no full-year profit guidance, although the company is hoping to carry 60 million passengers this year and for a smaller Q2 loss than Q1.

My view

If I had to invest in one airline, it would probably be this one. Its position as the low-cost carrier is fully cemented, with ongoing cost advantages.

It’s very difficult to tempt me into buying airline shares, but at this much lower valuation compared to pre-Covid I am almost tempted.



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Market cap £1.2 billion
RNS Trading Update and Special Dividend
Writer disclosure No position.

I’ve not looked at this one before – and clearly I should have! It’s up 22% today alone:

From Belfast, it provides “IT, consulting and software solutions”.

It is involved in “track and trace” efforts for Covid-19 patients. It’s involved in the NHS Home Testing Service. So I guess it’s one of the few beneficiaries of the crisis?

Today’s update:

  • full-year revenue to be “well ahead” and adjusted profit “substantially ahead” of consensus forecasts.

I can see a revenue forecast of £177.5 million and a net income forecast of £17.5 million. So these should be beaten.

Cost savings – there are non-recurring “efficiencies” from less recruitment, training and travel. Kainos says it will ramp up these costs again in future, when it’s pushing for more growth.

Net cash of £62 million.

Special dividend of 6.7p (value: £8 million), instead of a final dividend.

The final dividend was 6.5p last year. So there is no huge change in the actual payout. But it’s a nice green flag to see the payment being made. Given the net cash position, it can clearly afford it.

Outlook“it is too early to predict the duration or the severity of the COVID-19 economic disruption and any impact it will have on our customers”.

My view

Highly rated and perhaps for good reasons. I’ll need to expand my understanding of what this company does, for future reports!



That will do it for today, cheers!




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