Early next month Stobart Group Ltd (LON:STOB) will jettison its old name and become Esken Ltd.
And in the months to follow the aviation and energy infrastructure group hopes also to be able to cast off two even larger burdens that have been hanging over the shares.
Overhang number-one is the same as pretty much every other company involved in the aviation industry: pandemic travel restrictions.
The group’s aviation arm owns and operates London Southend airport, which normally boasts a huge catchment area as well as a low-cost operation and a strong reputation for customer service.
“We’re a leisure-based airport, we’ve a catchment area of eight million people and in two or three years capacity will be back,” says chief executive Warwick Brady.
“But in the meantime we’re a very low cost operator and when things come back airlines are going to be so sensitive to costs, and we are really well placed to go forward on the cost side.”
Having raised £140mln last June this business has, like much of the British populace, battened down the hatches and is waiting for the lifting of travel restrictions and the return of sunny overseas holidays.
On top of that cash injection, Brady can boast a further layer of resistance for the aviation business from income that has continued uninterrupted from its long-term contract with a ‘global logistics partner’ that is thought to be Amazon.
The group’s other core business, Energy arm, did not have it easy during the pandemic but has remained profitable in the first half of the year and in recent months has seen improving trends.
This business has a dual revenue stream, as it is paid a gate fee to take the wood for recycling and is later paid by the biomass energy plants for delivering the end-product.
“During the first UK lockdown the closure of recycling centres meant that supplies of wood dried up but we have got volumes up over the last sort of three or four months and we expect it to be back to 2019 levels next financial year, which is from the first of March.”
During the group’s first half of the year to February 28, 2021, cash burn for these two core businesses was reduced to an average of around £2mln per month, mostly in lease and rental payments.
But this is where the second overhang comes in: the ownership of the Stobart Air franchise and Propius air leasing businesses, which the group was obliged to buy back from the administrators of Connect Airways last year.
Under the ownership of these two business, back in 2017, Stobart Group had signed up to provide guarantees to the third party over the US$15.4mln annual rentals payable until expiry in April 2027.
The cash burn in the first half of the current financial year for this pair was £14.7mln.
Understandably, the company is looking for an exit, with limiting the company’s liability being the key point rather than necessarily recouping any cash.
“I think it has definitely been an overhang for investors,” says Brady.
He says he also looking at “various opportunities to realise value for shareholders over the next year”.
This would seem logical to include a potential separation of the aviation and energy businesses, which have no real connection and are valued very differently.
On this, Brady says, “if someone comes in to buy your house for lots of money you’re going to sell it aren’t you?”
There is quite a lot of interest in strategic infrastructure in the UK and with the airport unique in being publicly listed.
Stansted Airport was sold for £1.5bn back in 2013 and Gatwick for £2.9bn in 2018.
Stobart Group, which as a whole is being valued by the market at not much over £210mln, was in talks with Avialliance to sell 25% of the airport in a deal that valued London Southend at £700-800m in March 2020, before the pandemic scuppered the deal.
And Stobart Energy alone was independently valued at £210m as part of the realisation of a share scheme announced in September 2019.
Investors should start to see the underlying value of the sum of the parts as the various overhangs are removed and the new Esken moniker, which is taken from the Old English for ‘rise’ or ‘climb’ will start to look a lot more fitting.