Gamble of the week: Dart Group

published 28 July 2014

The company owns budget airline Jet2.com and Jet2holidays, as well as a logistics business distributing prepared meals to supermarkets.Logistics doesn't make much money for Dart, so investors should focus on the future potential of its airline and packaged holiday business.

The company is led by Philip Meeson, a charismatic former RAF pilot who occasionally courts controversy with his plain speaking. Back in 2009, the police were called to Manchester airport after he lambasted his staff for not dealing effectively with a passenger queue.

Last month he announced that Dart Group did very well last year. It doubled the number of package holidays it sold, while the Jet2.com airline's profits increased by 17% to £31.2m.

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But that's where the good news ended. Sadly, Meeson said that things weren't going so well this year and he expected profits would not meet market expectations. Analysts didn't like this and predicted that earnings per share would fall by a third to 16.6p. The shares tanked by almost the same amount and have not recovered.

Investors often feel that profit warnings are an act of betrayal and head for the exit. Sadly, they are just a fact of business life. They can throw up decentopportunities for bargain hunters if there's a chance that profits willbounce back.

Dart's business model is based on selling package holidays and flights from airports across the north of the country. It has grown rapidly in recent years and now has a fleet of 55 planes. It's seeking further growth by expanding the number of destinations it flies to think sunny Mediterranean resorts and popular European cities.

The risk with travel and airline companies is that they put too much capacity onto the market and have to slash prices to fill it. Bigger companies, such as TUI Travel and Thomas Cook, have made this mistake. However, Dart has done well so far. It's kept its planes full (91% load factor) without slashing prices.

Analysts expect Dart's earnings per share to bounce back to over 25p in two years' time. At 208p, that would put the shares on a price-to-earnings ratio of 8.3 times. These shares are not for the nervous, but could be worth a punt.

Verdict: buy

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.