John Menzies looks ready for take-off

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John Menzies looks ready for take-off
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Master Investor Magazine Issue 57

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John Menzies has refocused itself as a pure-play aviation services business and the shares look ready to take-off, argues Mark Watson-Mitchell. 

We all seem to know the name of John Menzies (LON:MNZS), especially if we have been travelling anywhere.

The name used to be synonymous with Britain’s railway and coach station platforms. However, it is now better known internationally for its proper business; not the distribution of newspapers and periodicals but instead in the global aviation services sector.

The company has come a long way since John Menzies set up his bookshop in Princes Street in Edinburgh way back in 1833. In those days not only did he sell The Scotsman newspaper to the public, but Charles Dickens’ publisher used Menzies to sell the monthly instalments of the famous author’s first novel.

The shop business grew and started to stretch across the country as the company developed a significant distribution operation.

Over the late 1900s the company used the ability of its own Microlink computer distribution side to take it into the transport sector, through an overnight courier service for retail customers and freight forwarders.

The early 2000s saw the group get into global airport ground handling operations. Subsequent expansion of its plethora of services saw the company make two very useful acquisitions – in 2017 it bought Aircraft Services, a leading aviation ground service provider operating in some 80 airports worldwide.

Then in 2018 it acquired Airline Services, a specialist provider of aircraft de-icing and presentation services for some 60 airlines at 12 UK airports.

By September that year the group then sold off its entire distribution activities, such that it has now left the group as a pure aviation logistics business. It operates at 219 airports in over 37 countries across the world, offering passenger, ramp and cargo services and employing over 36,000 people.

Each year Menzies Aviation handles 1.4m flights, 1.6m tonnes of cargo and 4m turnarounds. The group serves over 1,000 customers, including Air Canada, Air France-KLM, American Airlines, Cathay Pacific, China Airlines, Delta Air Lines, easyJet, Edelweiss Air,  Emirates, Frontier Airlines, IAG, Lufthansa, Middle Eastern Airlines, Norwegian Air Shuttle, Royal Air Maroc, TAP Air Portugal, United Airlines and Wizz Air.

The overall aviation market has been tough in the last year or so, but the company has swiftly implemented measures that will cut back over £10m in cost saving, whilst also revitalising its commercial offering and making its operations more efficient. It has also been winning more business.

The current year to end-December may see some benefits from those actions, but the bigger impact will be in the 2020 results.

There are 84.45m shares in issue, valuing the group at around £380m. Large holders in the equity include Kabouter Management (11.84%), Axxion (9.90%), Menzies Family Holdings (9.38%), Sterling Strategic Value (7.71%), Lakestreet Capital (6.47%), DC Thomson (5.95%), Premier (4.11%), JP Morgan (3.46%), Threadneedle (3.13%), and LOYS (2.89%).

Brokers estimate that this year will see revenues improve £48m to £1.34bn, with pre-tax profits of £31m against £21.6m last time. That should see earnings coming out at 32p and covering an unchanged 20.5p dividend per share.

The coming year could see £1.38bn revenue and £43.5m pre-tax, worth nearly 42p in earnings per share, with a 20.9p dividend.

Trading at around the 450p level these shares look to be an excellent future performer. My end-2020 target price is very modest at 530p.


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