Shares in aviation services group John Menzies (MNZS) rose 1.2% to 255p despite suspending its dividend, reporting a fall in profit and warning of a ‘very disappointing’ headwind from the coronavirus.
The firm has decided to suspend its dividend as it looks to pay down debt and get its balance sheet back on track, something which hasn’t been helped by the virus outbreak.
Providing airport services around the world, John Menzies is particularly exposed to the aviation market which has been hit hard by the virus outbreak.
At the end of February the firm warned that profit in 2020 would be impacted by up to £9m on the assumption the virus outbreak subsided by the end of June, with its operations in Macau worst affected at the time.
The firm said today that given how it has ‘right-sized the business during the second half of 2019, and given the otherwise underlying positive momentum of the business’, the headwind posed by the coronavirus is ‘very disappointing’.
In full year results to 31 December, net borrowings for 2019 increased to £216.6m, up from £199.6m in 2018 and around £10m higher than analyst estimates, taking the net debt to EBITDA ratio to 2.86 times compared with 2.4 times in 2018.
The company aims to reduce this to a range between 2-2.5x by the end of 2020.
Pre-tax profit fell to £17.3m compared with £21.6m in 2018, even as revenue increased to £1.33bn, up from £1.29bn the year before.
According to Stockopedia, the firm trades on a 12-month forward price-to-earnings ratio of 8.8x, suggesting that market expectations for the business are somewhat low.
'FIT FOR 2020'
A mainstay on the high street 30 years ago, where it stood alongside the likes of Littlewoods and Woolworths, John Menzies has been through a long process to reposition itself to where it stands today, as the second largest aviation services firm in the world.
John Menzies chief executive Giles Wilson said, ‘Last year, we said we would be 'fit for 2020' by doing five things: right-sizing the business, fixing underperforming operations, improving customer engagement, investing in our team and targeting higher margin business.
‘We've delivered on all five thanks to the hard work of all our colleagues. We now have the right team and the right structure that puts us in a strong position to seize the opportunities in this structural growth aviation market.’
'NEW HIGHER YIELDING MARKETS'
Executive chairman Philipp Joeinig added that the company has two goals in 2020 - cutting debt by focusing on cash and pruning its capital expenditure, and achieving growth by expanding its services and moving into ‘new higher-yielding markets’.
Shore Capital analyst Robin Speakman said he supports the decision to suspend the dividend as the firm looks to conserve cash to deleverage the balance sheet, something he said shows the ‘underlying cash generation potential’ of the company. Payouts are expected to resume by the end of 2021.
Speakman added, ‘In our view, Menzies does face real opportunities to deploy capital to growth in due course and a focus on the balance sheet (with covenants likely under temporary pressure in the short term - first half period) is logical.’
