John Menzies - the seatbelt sign is still on

John Menzies: Back in November, I was worried that Jeremy Stafford’s arrival as CEO would place a query over a high, but affordable, dividend. Those concerns were correct with today’s finals for calendar year 2014 including a near 40% cut from 26.5p to 16.2p. After an increase in the interim, this means that the final of 8.1p is less than half last year’s level. In the results we continue to have the ‘boring’ old distribution side propping up the aviation services side, which should provide the structural growth but isn’t. That said, the results were pretty much in line with reduced expectations, with flattish turnover feeding through to underlying pre-tax profits, down 16% at £44.6m after a £3.5m currency headwind. Underlying eps were down 25% at 49.2p, leaving the reduced dividend covered 3x. The dividend optimists will point out that the old 26.5p dividend would still have been covered almost 1.9x, but a new CEO has one chance to cut the dividend without personal blame and Stafford has taken it.

On the distribution side, profits were flattish, with cost cutting offsetting structural declines in newspapers. The buzzy sounding future here is to try and latch on to e-commerce logistics growth. In the aviation side last year was a ‘mare, with contract churn and margin erosion compounded by airline terminal relocation at Heathrow. Going forward the plan is to concentrate more on hubs (a recent win at Oslo is cited) and on North America. This will, they hope, avoid having a geographic splat of operations with less added value and lower customer engagement. The balance sheet is still in decent nick with £74m of operating cash flow and £110.9m of net debt, so the re-structuring can be paid for. However, the dividend cut (of c£4m) will free up some (but not a lot) of cash to help in this process.

The outlook implies that last year’s disruptions have impacted the early part of 2015 with this year “more than usually weighted to the second half”. So I will go with flat eps for this year of 49.2p, a PE of 7.9x at 387p (down around 4% on the day). A 16.2p dividend would be a yield of 4.2%, (assuming that the 50% cut in the final doesn’t mean we should look at 13.2p as the new base). If Stafford can deliver, then these are attractive valuations, but the cautious may prefer to wait for one more trading update just to see if aviation has really turned the corner. (Neil Cumming^, 10^th March2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower