Business jet services company Gama Aviation (GMAA:AIM) enjoys a 3% share price hike to 255p as its reveals a revenue increase of 45% to $291m in the six months to 30 June.
A large part of this improvement is thanks to a revenue increase of around 74% in its US air services arm, reflecting the company’s game-changing management merger with part of BBA Aviation and the growth of the Wheels Up contract.
The latter’s contract is a membership-based US private plane service which greatly reduces the cost of being able to fly in a private jet.
CHEAP VALUATION
Gama is trading on 7.1 times 2018’s forecast 36p earnings per share based on broker WH Ireland’s estimates.
WH Ireland analyst John Cummings describes this valuation as undemanding and gives the company a buy recommendation with a 370p target price.
STRATEGIC MOVES
Gama chief executive Marwan Khalek says that as much as he values the Wheels Up contract ‘it was becoming a big part of the business’ and the deal with BBA helps ‘recalibrate’ the company’s offering.
He adds that the deal helps to reduce concentration risk in the business as the deal with BBA not only offers coast to coast coverage of the lucrative US market, it may lead to cross-selling opportunities with BBA.
Khalek admits not much of this has come through yet, although he expects cost savings to follow in due course.
GENERATING CASH
Another positive part of Gama’s results is the $5.1m reduction in net debt to $14.3m. Some of this, $4.2m, was due to the disposal of legacy aircraft but the business is also becoming more cash generative.
The company’s pre-tax profit stood 40% higher at $7m. Underlying earnings per share is up 25% to just over $0.12.
