After some hemming and harring over the weekend, I decided to sell out of FLYB (Flybe) – the airline. My rationale was simple: it looks fairly priced to me. In hindsight, I should have sold at the beginning of April, then the share price was near 150p, and it was in overbought territory. It was also at the top end of the trendline. However, I got carried away with the story, and thought that momentum would take it higher. FLYB is now trading near the bottom of its trendline, and is close to being oversold. So, arguably, it would make sense to hold for a bounce. I decided to take my profits (and in this market, a profit is nice to have!) and run, though. Below, I give my rationale for concluding that the company is fairly valued.
Looking at the last few years, and analyst projections, I reckon that we can expect revenues of around £600m. Assuming it can earn operating margins of around around 5.3%, that gives me an EBIT of £31.8m. We could sit here all day and argue about the reasonableness of these estimates, of course, but to me they look “about right” with what I might expect. Over the last decade, for example, the operating margins for EZJ has been 6.55%, DTG (Dart) 4.45%, and IAG 5.30%. So you can see where I’m coming from.
FLYB has an EY (Earnings Yield) of about 9.1%; take an estimated EBIT of £31.8m, and divide by the EV of £349.9m. That’s actually pretty good, and might be considered good enough to be considered a “hold”. Not quite enticing enough to be a buy, though. Note that my estimate of EY is considerably below what Stockopedia is using in its Greenblatt screen: 71.2%
If I look at PBV for various companies over the last decade, I get EZJ at 1.48, DTG at 1.35m and IAG at 1.19. FLYB is on 5.35, which is more than usual. If I look at EV/Sales, I get EZJ at 0.77, DTG at 0.17, and IAG at 0.56. FLYB is at 0.56. So really, if you look over the last decade, you would probably conclude that FLYB is on about par in terms of valuation.
I also had a quick look at RYA and AERL, but the overall conclusion didn’t change.