FLYB (Flybe) released its Q3 2014/5 trading update today, sending the shares down 23% to 69p at the time of writing. The share price was down about 10% yesterday, in a move that seemed suspiciously prescient. It’s difficult to know what the market disliked specifically, but I do note that passenger revenue per seat is down by 3%.
I don’t want to talk about this too much, because I know there are a lot of people in this share, and they’ll be understandably upset by what’s going on. I am sensitve to this fact, and I don’t want to rub salt into the wounds.
It is a warning that you should never follow high-profile investors into a share, but use your own judgement. I did note, in March 2014 (http://is.gd/Q3NfwU), for example, that I thought 125.75p was no better than fairly priced, based on sector margins and valuations. Contrary to my view, the market had enthusiasm about growth and recovery prospects at the time that was yet to be priced in.
I reported on 12 November 2014 that despite good revenue and load factors, the shares declined 15% (http://is.gd/xqwM0B). In hindsight, investors should have perhaps taken greater heed of the message that the market sent. I also noted that operators eventually abandoned their Aberdeen to London City routes, so we’ll have to see how it goes in flybe’s case. I think there’s a real possibility that Flybe will catch a cold on their commitment to Aberdeen, “the oil capital of Europe”, now that the oil prices are being hammered.
Flybe is also opening up a lot of other new routes, so I would expect a lot of promotional activity from them. This will inevitably dent profits. Sometimes I wish I lived near Heathrow, and was able to take advantage of promotional flights that airlines seem to offer on a fairly regular basis. So I think there’s an above-average risk of earnings disappointments. That’s just my daft, uninformed opinion, though. You’ll have to make up your own mind.
Flybe is starting to present me with a dilema, now. It’s got a lot of cash, so I’m thinking about it as a potential buying opportunity. At this stage, I’m only mulling.
Interesting. No position right now.