For those well-heeled or successful enough to fly by business or private jet, the travelling is almost as important as the arrival.
The quality of the service that high-end flyers expect at the airport and on board explains why BBA Aviation is preparing to introduce its “Elite” product, under which passengers on commercial flights are met, transported by private car to their hotel and reacquainted with their luggage.
Elite was one of a series of growth initiatives that BBA Aviation laid before investors yesterday at a capital markets day that also featured expansion plans for Signature, its fuelling and flight services operation, and Ontic, the acquisitive division that supplies and replaces parts for aircraft including the Boeing 747 and the B52 military bomber.
BBA Aviation was founded in Scotland in 1879. Before it developed its interest in aviation it was a provider of parts to specialist industries and car manufacturers. The company provides refuelling, ground handling and other airport services to the operators of private and business jets, as well as supplying parts to commercial airlines and the military.
BBA Aviation’s main market is North America and its presence at 140 of the country’s most important airports means it covers about 68 per cent of the market. A third division offering engine repair and maintenance services was put up for sale in May after a strategic review.
Flight support, predominantly through Signature, is by far the biggest part of the BBA Aviation, accounting for about 87 per cent of annual operating profits. As well as refuelling and ground handling, this part of the business owns hangars, offices and airport lounges, a valuable property portfolio in its own right.
BBA Aviation seems comfortable making acquisitions here, for example, buying Epic Aviation, a US provider of fuel and other services, in May for $88.1 million in cash. Although BBA Aviation owns the rights to operate at 199 airports through Signature plus a further 205 via Epic, there is room to grow and it outlined a plan yesterday to increase that figure to more than 600 by 2023. There are 21,300 airports in the US and the market is highly fragmented, suggesting BBA Aviation shouldn’t find it too difficult to identify opportunities.
In truth, though, it was probably Ontic that stole the show yesterday. At present accounting for just 13 per cent of operating profits, it has oodles of potential. This division is also happy to expand through acquistions. In September it acquired Firstmark, which makes precision-engineered components for the aerospace and defence industries, for $97 million.
BBA Aviation is also lining up Ontic to buy additional licences to supply parts and believes the division can get to $100 million of annual profits before tax and other items by the end of 2021, from $63 million last year. It is probably underpromising in this regard as it has given Ontic three years to get there and is already comfortably more than halfway to the target.
BBA Aviation is a powerful force in its chosen market. It is exposed to the macroeconomic fluctuations that can depress or boost demand for business and private flights, but it is not exposed to the rising oil price because it doesn’t include fuel costs in the services it provides.
The shares have had a lousy year, down almost a third since January. They are presently trading at more than two-year lows on worries about rising investment costs and a sluggish jet market in the US. This has made them inexpensive, costing 12.8 times earnings and offering a yield of more than 4.3 per cent.
ADVICE Buy long term
WHY Big growth opportunity, particularly in US, that it feels well equipped to deliver
Oxford Instruments
British high-tech success stories are few and far between, and when they do come along they tend to be gobbled up by a larger, avaricious overseas rival.
Though it has had its fair share of hiccups, Oxford Instruments could be described as a showpiece of home-grown industry, and one whose progress is still in the making.
The company was the first substantial spin-out from Oxford University, listing on the stock exchange in 1983, and is known for creating the first superconducting magnet behind MRI scanners.
It specialises in the cutting-edge materials and devices that make it possible to analyse and measure things at a molecular and atomic level, including microscopy systems, x-ray technology and cameras.
Oxford Instruments’ customers range from industrial businesses such as aerospace manufacturers to drug developers and 3D printer makers, as well as those involved in nano-technology and quantum computing. What they have in common is their use of Oxford Instruments’ products to help them pursue their scientific breakthroughs.
Much of the group’s recent strength is the work of Ian Barkshire, who took over in May 2016 in the wake of two profit warnings and worries about the debt pile. He initiated Horizon, a strategy designed to create sustainable growth and improved margins. Along the way, he disposed of the superconducting wire and industrial analysis businesses, making the debt manageable with net borrowings at the end of September were £12.5 million.
Oxford’s results for the six months to the end of September yesterday showed solid progress. Revenues in materials and characterisation, the division that accounts for 41 per cent of the group, were up a fifth to £60.1 million and margins rose by 1.7 percentage points to 16.1 per cent. Earnings at research and discovery, which generates 37 per cent of earnings, rose by 13.4 per cent to £54.3 million but margins were flat at 8.8 per cent.
The shares, off 34p to 950p yesterday, have gained 43 per cent since Mr Barkshire’s arrival. They change hands for just under 17 times last year’s adjusted earnings and yield 1.4 per cent.
ADVICE Hold
WHY Encouraging growth in orders, revenues, profitability
