Flybe Is An Intriguing Turnaround Story With An EV/EBITDA Ratio Of Less Than 1

Jun. 28, 2016 5:00 AM ETFlybe Group PLC (FLYBF)27 Comments


  • Flybe is a regional airline operating in the United Kingdom that is dealing with legacy issues.
  • The company leased planes that simply were too big, but when the lease deal expires, it will allow Flybe to save 20M GBP per year in leasing fees.
  • The current Enterprise Value is just $80M, which is very low considering the EBITDAR is $180M. The company is also trading at a 30% discount to its book value.
  • Flybe still paid a high price for its fuel in the previous financial year, but it has now hedged 90% of its expected consumption at a 32% lower price.
  • The fuel cost savings will be $40M+ this year and $50M+ next year, which is more than the company's current enterprise value.

(Editor's Note - Please note that amounts are presented in GBP, unless otherwise stated.)


It's great to find undervalued companies, but it's more rare to find companies where the market is completely mispricing a business. In this article, I'd like to provide you with an in-depth analysis of Flybe (OTC:FLYBF), a regional airline company whose share price has been death spiraling for the past 24 months now, losing approximately 70% of its value. I will show you why the market still has to catch up with the tremendous improvement of Flybe's situation, and why the company will start to surprise people in the next 6-24 months. To be honest, this company was a real head-scratcher as I just couldn't figure out why the market was valuing Flybe at just ~US$150M (coming from $500M just two years ago).

Flybe is a British company and I would strongly suggest to trade in the company's shares through the facilities of the London Stock Exchange where Flybe is listed with FLYB as its ticker symbol (pretty easy to remember). The average daily volume is approximately 600,000 shares.

FY 2016 - the first profitable year since the company went public

The company's revenue increased by more than 10% to 624M GBP which is a pretty decent result. Of the 624M in revenue, approximately 90% was generated by the company's own activities whilst an additional 14M GBP was received from companies it's flying white label services for (Scandinavian Airlines and Brussels Airlines). The higher revenue was also associated with higher expenses, but fortunately,Flybe was able to report an operating income of 8.7M GBP, which is much better than the operating loss of almost 13M GBP in FY 2015.

Source: annual report

Thanks to a tax credit of approximately 4.1M GBP, Flybe's bottom line shows a

This article was written by

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We zoom in on capital gains and dividend income in European small-caps
As I'm a long-term investor, I'll highlight some stockpicks which will have a 5-7 year investment horizon. As I strongly believe a portfolio should consist of a mixture of dividend-paying stocks and growth stocks, my articles will reflect my thoughts on this mixture.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FLYBF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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