Shares in airport services firm John Menzies (MNZS) climbed 15% to 166p after it revealed that trading in the current quarter was ‘ahead of management expectations’, with a recovery in flight activity expected to begin from early next month.
Menzies also said it had ‘sufficient liquidity capable of supporting the group's requirements into 2021 following significant proactive cost action taken and the benefit of government schemes around the network.’
VOLUMES REBUILDING
Restrictions on travel due to coronavirus have had a significant negative impact on demand for the group’s activities, with most customer flights grounded since the end of March.
Ground handling and fuelling services were down 75% on last year during April and May with ancillary passenger airline services affected to a similar degree, although the cargo handling business has been more resilient with volumes down just under 40% in April.
Menzies sees a gradual return of short haul capacity from July with long haul capacity taking longer to recover, but in the meantime its AMI freight forwarding unit ‘continues to trade well and in line with 2019 performance, with a positive outlook for the coming months.’
FINANCIAL STRENGTH
Due to ‘strong’ cost management and airline customers honouring their payment terms, the firm has avoided any material bad debts and its financial performance during April and May has been better than forecast at the time of the March trading update.
As a result of unwinding its working capital and customers paying promptly the firm was cash generative throughout April and May.
It has also taken advantage of the government furlough scheme to offset staff costs which account for more than 60% of revenues.
Liquidity is seen peaking above £180m by the end of the month before declining as volumes start to rebuild and the firm has to increase its working capital to more normal levels, but it is confident it has enough headroom to see it through the rest of this year and into 2021.
EXPERT VIEW
Christopher Bamberry at Peel Hunt remains a buyer of the stock, saying the long term growth potential of the aviation services market is still attractive ‘and as a global leader, Menzies should emerge strongly.’
Shore Capital analyst Robin Speakman points to the fact that Menzies was profitable before the crisis and ‘is set to be profitable and potentially strategically stronger coming out’, while many of its smaller peers may not survive the collapse in business volumes.
