Gama Aviation plc (GMAA.L), formerly Hangar 8 PLC, is a UK-based global aviation services company with over 24 heavy jets under management. Gama’s various aircraft types offer services ranging from short European itineraries to trans-continental voyages. The Company also charters aircraft to third parties, provides insurance, operational support and aircraft crewing services. Segments include US: Air, US: Ground, Europe: Air, Europe: Ground, MENA: Air, MENA: Ground, Asia: Air and Other.
On January 9th 2017, in advance of FY results due 27 March 2017, Gama issued a trading update for the financial year ended 31 Dec 2016. The group said it had seen strong revenue growth of over 10% year on year, with earnings in line with market expectations. Earnings also excluded a material foreign exchange credit, which resulted from the unusually volatile currency fluctuations during the year. Noting improvements in the performance of its European business arm, Gama also said it had increased the number of aircraft under management to 165 (147). CEO Marwan Khalek said it had been a “busy and productive year for Gama Aviation,” adding that the recent combination of the US Aircraft management business with BBA Aviation “is a clear demonstration of our determination to build scale into our business in ways that add value to our shareholders.” Since the results, GMAA has also won two long-term mission contracts, announced a long-term business aviation maintenance collaboration with China Aircraft Services Ltd and a Europe-wide maintenance agreement with WIJET.
Gama Aviation’s potential had been flagged up across a number of VectorVest metrics at the start of 2017. The Earnings Growth Rate (GRT), which reflects a company’s one to three year forecasted earnings growth rate flagged a forecast of 20.00% for GMAA, which VectorVest considers to be very good. Added to this, the VST-Vector (VST) metric, computed from the square root of a weighted sum of the squares of Relative Value (RV), Relative Safety (RS), and Relative Timing (RT), rates GMAA at 1.32, which is very good on a scale of 0.00 to 2.00. Last but by no means least, VectorVest values GMAA at 272.83p per share. Therefore, the stock is undervalued at the current 207p per share.
A weekly chart of GMAA.L is shown above and shows the strong advance since the middle of December 2016 on strongly growing earnings. This advance has emphatically broken the down sloping trend line in price over the past year. I would suspect that the share will pullback over the next few days and chart a “right shoulders” prior to resuming the uptrend. A pullback to the last major high at 200 would be a excellent entry point.
Summary: The GRT metric shows the rate at which GMAA earnings are growing; no coincidence given the number of new contracts announced since the bullish trading statement in January. Although the stock is not without risk, VectorVest expects the valuation gap to close significantly ahead of the results in March. Buy on any weakness over the next few days.
Dr David Paul
February 1st 2017
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