A strong set of 2014 results was not enough to offset a sharp decline in Dart Group's (DTG:AIM) shares as investors focused on the 2015 headwinds which are likely to drag operating profit lower. Stock in the Leeds-headquartered airline, package holiday and logistics outfit has taken a huge nosedive, shedding 25.4% to 187.5p following its profit warning.

Dart's full year results to 31 March show a 30% hike in operating profit to £49.2 million and a 4% increase in pre-tax profit to £42.1 million. Yet investors are unsurprisingly focusing on the worrying outlook, which spells out flagging  leisure travel demand and stiff pricing pressure. Chairman Philip Meeson speculates that this may be due to the weather, the World Cup, or because the financial recovery hasn't yet taken hold in the group's home territory, the North of the UK. But whatever the cause, operating profit this year will miss internal, and presumably the market's, expectations. No hint was given as to what they were.

DART GROUP - Comparison Line Chart (Rebased to first)

Dart currently comprises of three operating businesses; leisure airline, package holidays and distribution and logistics and while 2014 group performance proved exceptional, its Jet2holidays package holiday business, which almost doubled the number of customers to 830,019, proved to be the group's headline act. Turnover rose 103% to £496.2 million with increasing volumes bolstering operating margins which rose from 2.7% to 2.9%.

Dart's leisure airline Jet2.com grew its load factor to 91% from the previous year's 90%) off the back of a 14% increase in capacity. At the same time, net ticket yield improved from £74.66 in 2013 to £78.39. Although there was 16% growth in revenues to £643.1 million in this business profit before tax fell to £23.9 million compared to the previous year's £29.3 million due to adjustments associated with the revaluation of US dollar cash balances and certain ineffective hedges.

On the logistics side of the business, Fowler Welch revenues slipped 1% to £153.2 million following a tough first half. That was explained, according to the company, by an unexpected profile of seasonal volumes required by its supermarket customers during late July, August and September, requiring extra resource to uphold service levels.

Net cash flow from operating activities in the period amounted to £130.8 million compared to the previous year's £150.3 million and Dart continues to invest with capital expenditure during the year printing at £83.5 million compared to £79.7 million in 2013 with much of this related to long-term maintenance spend on aircraft and engines, the acquisition of two Boeing 737 aircraft, and investment in a new flight crew training centre, incorporating three flight simulators.

As a result however of the weaker 2015 outlook, broker Canaccord Genuity has reduced its revenue and earnings per share (EPS) estimates by 2% and 30% respectively but maintains a strong recovery forecast for FY16. The broker maintains a buy recommendation but lowers its target price to 288p from 338p, 'based on 12.5x 2015E calendarised price/earnings ratio (PER).'


Issue Date: 26 Jun 2014