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BT Caught Out in Major Fraud.

BT Group BT.A has reluctantly apologised for cheating on its Openreach customers over a number of years. After a whopping £42m fine which has now been imposed by Ofcom, it did not have much choice but it still has the audacity to try and get away with calling them “mistakes”. Ofcom takes a slighty different view and calls them “serious failings” and they were serious failings which BT doggedly refused to do anything about for three years.

Even after it had been caught out, BT refused  for those three years from 2013, to pay any compensation to those of its customers who had suffered loss. In the end Ofcom has forced it to come to the table to agree a compensation figure which it is expected, will reach something in the region of £300m. BT laughingly blathers on about failing to adhere to its extremely high standards of customer service but makes no mention of action against any of its management who were responsible for what was in effect a major fraud.

Elecosoft plc ELCO saw a significant improvement in trading and financial performances in 2016 and the current year has started well. Like for like revenue on a constant currency basis for the year to the end of December rose by 8%. Profit before tax was up by 42%, EBITDA by 35% and basic earnings per share by 55%. The proposed final dividend is 0.25p, making a total of 0.4p for the year. Eleco also claims that it is well placed for trading post Brexit.

YouGov plc YOU enjoyed a strong period of organic revenue and profit growth in the half year to 31st January. Revenue grew by 24% or 8% on a constant currency basis. Earnings per share were up by 21% and profit before tax by 27% on an adjusted basis. trading in the second half has started positively.

Bioventix BVXP produced a strong first half performance and is inceasing its interim dividend by 21%. Turnover grew by 32% and profit before tax by 49% in the six months to 31st December.

Gama Aviaton GMAA claims an exceptionally busy year for 2016 and a robust financial performance, with aircraft under management up by 12.2% and total revenue at record levels with a rise of 12.6%. US air revenue for the year to the end of December rose by 30% and ground revenue by 15%, as Gamma became a powerful market leader in the US. Europe however told a different story with air revenue down by 5% and ground revenue by 15% as  it extricated itself from contracts it may have been better without and entered a restructuring programme. On a reported basis, profit before tax nearly tripled to $19.3m and earnings per share nearly doubled to $42.9m. the dividend is increased by 4%.

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Buy Gama Aviation (GMAA) – We are impressed by earnings growth and the rate of contract wins, says VectorVest.

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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