Due to the current market crash caused by the pandemic, airlines are suffering. Customer demand and sales have taken a massive hit. It seems the ability to book a holiday and travel worry-free may be a thing of the past due to Covid-19.
Market crash opportunity
A share I am particularly interested in right now and consider a contrarian buy is Dart Group (LSE:DTG). DTG is the holding company for its subsidiary Jet2 and is recognised at the UK’s third-largest scheduled airline. Another subsidiary of DTG linked to Jet2 is Jet2 Holidays which offers customers package holidays as opposed to just flights.
When the market crashed back in February, DTG’s share price took a mammoth hit. In mid-February, its share price was close to 1,950p per share. At the lowest point, DTG’s share price had decreased nearly 85% to just over 300p. Since this low point, DTG’s share price has recovered over 100% to currently trade at close to 650p per share. I feel this is a great opportunity to pick up cheap shares right now.
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Recent performance
In July, DTG released full-year results for 2020 ending 31 March. Despite the market crash and pandemic affecting current performance, the earlier results were very promising. Group operating profit was up 43% while group revenue was up over 20%. Jet2 flew 14% more customers in 2020 compared to 2019.
Full-year results prior to the crash may seem irrelevant. DTG has also consistently provided trading updates to provide transparency to its investors throughout the crash. Among the measures to ward off financial troubles were the cancellation of a final dividend payment. DTG also moved to ensure a healthy cash reserve with government support of £300m that would be used if needed.
Dart Group also issued 29.78m shares in May, which helped raise over £170m to help strengthen its balance sheet. Furthermore, DTG sold its distribution and logistics business, Fowler & Welch, at the end of May. This bought in an additional £98m. Overall, DTG is in a good position financially and has healthy cash reserves.
My verdict
Make no mistake, airline shares are considered risky right now. There are some airlines I would not recommend. I understand that travelling and the holiday market could change forever. That being said, I feel Dart Group (with its Jet2 subsidiaries) represents a great market crash share at such a cheap price.
Yesterday’s announcement of over 100 pilots being made redundant is unfortunate but not a deal breaker for me. I simply see this as a move in response to changing market conditions.
Looking back at its recent full-year results as well as its past performance there is not much to dislike. Revenue has been increasing year on year for the past five years. In addition, profit has been increasing year on year for the previous four years. Of course, Covid-19 will mean this trend may be broken for the current year but I am not too worried. Long term I feel DTG is a healthy business that is well placed to return to normality over time. If you like a contrarian buy this could be one for you.
