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New Stobart Group boss confident that business is on track to hit “ambitious” long-term targets

Published: 05:05 05 Sep 2017 EDT

stobart air plane at london southend airport
Stobart has Energy, Aviation, Infrastructure, Rail and Investment divisions

The new boss of Stobart Group Ltd (LON:STOB) is confident that the business he took over earlier this summer is on track to hit its “ambitious” long-term  targets.

In a pre-close interim trading update, chief executive Warwick Brady said the infrastructure and support services group has enjoyed a solid opening six months.

Targeting 5mln passengers from London Southend by end of 2022

Passenger numbers at its London Southend Airport have jumped 22% to 482,000 in the five months to 31 July as awareness of the site continues to grow, while underlying earnings (EBITDA) per passenger is “close to the management’s target”.

Stobart has been looking to increase the number of airlines that fly in and out of London Southend but this has been slower than expected with airlines needing between six and 18 months to plan investments in new operations.

By the end of next year, Brady hopes the airport will welcome 2.5mln passengers, followed by 5mln in 2022, although he admits that is dependent on securing more “major airlines”.

Back in May, 11 new European routes were added and the company expects airlines flying out of its airport to continue to add more as demand in Greater London rises.

While the group is confident in hitting its 2018 and 2022 targets, the delays to adding new airlines means that there could be some “risk to near-term targets”.

READ: Stobart Group says it is ‘trading in line with expectations’ ahead of AGM

Biomass deliveries to rise sharply in second half

Away from its airport, Stobart supplies biomass to power stations across the UK. Six power stations are either in commissioning or are due to be commissioned soon, which means deliveries of biomass should rise sharply in the second half.

The new stations have had a few teething problems as they start up which meant only 40,000 tonnes were supplied in the first half compared to notified volumes of around 200,000 tonnes.

Things look better for the second half though, with 330,000 tonnes expected to be delivered under the contracts. That pales in significance to the 2mln tonnes and 3mln tonnes of annual biomass supply Stobart is targeting by the end of 2018 and 2022 respectively.

Some of the delays in the opening six months were longer than Stobart had expected and it will take a hit of £1.6mln as a result, although it will look to recoup some of these costs directly from the power stations where possible.

Despite the minor issues, Stobart said underlying earnings (EBITDA) per tonne is ahead of targets and the long-term total volumes remain unchanged.

£120mln boost from partial sale of Eddie Stobart stake

Stobart is on track to deliver planned underlying earnings (EBITDA) in both of its infrastructure and investments divisions.

That includes the “significant uplift” of around £120mln from the partial sale of its stake in Eddie Stobart Logistics PLC (LON:ESL) which floated on AIM earlier this year. It still retains a 12.5% stake in the well-known haulier though.

It is still looking to dispose of other investments when the time is right in order to realise value.

Stobart owns a regional airline called Stobart Air which was ahead in the first half but is expected to take a little hit in the second half as it builds and markets new winter routes.

The group also has its Stobart Capital division which has now been set up and is already looking at possible investment opportunities.

WATCH: Stobart Capital to 'identify opportunities and hidden value', says CEO Andrew Tinkler

‘Ambitious targets set for 2022’

“In order to meet our aviation target we need to build a portfolio of airlines that will capitalise on London's capacity constraints as well as the large London catchment,” said CEO Brady.

“This has taken longer than we originally envisaged. However, I am convinced that the overwhelming demand for additional airport capacity in London means we will ultimately meet this objective.”

He added: “Our efforts to meet our energy division targets have been frustrated by delays experienced by our partners in commissioning power stations. This has caused some volatility as the new plants come on line, and this is impacting short-term performance.

“I have also set further ambitious targets for 2022 and I am confident that meeting these targets will deliver significant dividend returns for shareholders over a number of years.”

Results for the six months ended 31 August are scheduled to be published on 19 October.

Shares fell 0.8%, or 2.3p, to 292.7p.

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