DRTGF - Plural Investing - Jet2: A Value-For-Money Entrant Profitably Taking Share
2023-03-08 11:15:00 ET
Summary
- Jet2 has done an outstanding job succeeding as a value-for-money entrant that is profitably taking share from legacy players.
- Potential investors in Jet2 almost always focus on short-term macro factors rather than the company's underlying performance.
- Our thesis continues to be based on Jet2 long-term intrinsic value as it emerges from Covid as the UK's leading package holiday provider.
The following segment was excerpted from this fund letter .
Jet2 (JTTTY)
Jet2 is a UK based package holiday business that also operates its own airline. The company is run by its Founder and Chairman Philip Meeson, who owns 21% of the business, CEO Steve Heapy, and CFO Gary Brown. All three have high integrity, exceptional customer focus, and concentrate on long term value creation when allocating capital. They have done an outstanding job, with Jet2 succeeding as a value-for-money entrant that is profitably taking share from legacy players. We invested in the business at around £5/shr, the stock trades at £10/shr today, and we think will be worth £25/shr in three years.
In our experience, potential investors in Jet2 almost always focus on short term macro factors rather than the company's underlying performance. That tends to create buying opportunities during periods of macro uncertainty, and 2022 presented another one of those.
The stock had halved by October from its high earlier in the year as rising energy and mortgage costs in the UK left investors concerned about the outlook for Jet2's earnings next summer. We took the opportunity to add significantly to our position and were rewarded this quarter as the stock rose around 50% from its lows after the company reported record results, with revenues 36% ahead of pre-Covid levels, EBIT 42% ahead, and encouraging bookings going forwards. We were most impressed with the fact that the company generated enough cash in one summer to almost restore its balance sheet back to pre-Covid levels of strength. We have since trimmed our position back to a medium sized one to invest further in our other businesses.
Pent-up demand for travel is so far continuing to outweigh a difficult macro environment in the UK, with companies throughout the travel sector largely reporting strong bookings and pricing. Our own data suggests that Jet2's bookings continue to be at a record level, although we expect higher hotel and labor costs will mean margins over the next twelve months are less impressive than the previous twelve.
Regardless of whether profits next summer are as strong as we expect, we believe that results from any individual summer are largely noise in determining the value of Jet2. The stock has increased from 70p/shr a decade ago to £10/shr today because of the company's industry leading customer satisfaction driving repeat purchases and market share in package holidays from 2% to 20%. It was therefore pleasing this quarter to see Jet2 again finish top of consumer research group Which?'s annual survey of package holiday customers. Jet2 finished #1 with an 84% satisfaction rate vs its main competitors TUI at #17 and easyJet holidays at #18.
Our thesis continues to be based on Jet2 long-term intrinsic value as it emerges from Covid as the UK's leading package holiday provider. We estimate the company will be earning £1.5£2.5/shr in three years' time as it emerges from this crisis with a significantly strengthened market share, reputation, customer loyalty, list of hotel partners, and airports to fly from.
Important DisclosuresThis material does not constitute an offer or solicitation to purchase an interest in Plural Partners Fund LP (the Fund"), or any related vehicle. Any such offer will only be made via a confidential private placement memorandum. An investment in the Fund is speculative and is subject to a risk of loss, including a risk of loss of principal. There is no secondary market for interests in the Fund and none is expected to develop. No assurance can be given that the Fund will achieve its objective or that an investor will receive a return of all or part of its investment. This material is confidential and may not be distributed or reproduced in whole or in part without the express written consent of Plural Investing LLC (the "Adviser"). The performance results shown and discussed herein represents the performance of the Fund, a vehicle managed by the principal of the Adviser (the "Principal"). The Fund began trading on April 1, 2020. "Gross" results shown reflect the deduction of transaction costs actually incurred but are before management fees or performance allocation were incurred. "Net" results shown reflect the deduction of a 1.0% per annum management fee and 20.0% performance allocation. Results are compared to the performance of the MSCI World Net Return Index, or similar indexes (collectively, the "Comparative Indexes") for informational purposes only. Returns data for the HFRX Global Hedge Fund Index are from source: Hedge Fund Research, Inc. www.hedgefundresearch.com, © 2022 Hedge Fund Research, Inc. All rights reserved. Past performance is not necessarily indicative of future trading results. The Fund's investment program does not mirror the Comparative Indexes, and the volatility of the Fund's investment program may be materially different from the volatility of the Comparative Indexes. The securities or other instruments included in the Comparative Indexes are not necessarily included in the Fund's investment program and criteria for inclusion in the Comparative Indexes are different from those for investment by the Fund. The positions presented and discussed herein represent investments in the Fund as of the date listed. These positions are presented for informational purposes only to demonstrate a portfolio allocation of the Principal as of a recent date. Results of large "contributors" to the Fund's returns are also included for informational purposes only. No representation is being made that the Fund will or is likely to hold the same or equivalent positions or allocations in the future. Certain information contained in this presentation is derived from sources believed to be reliable. However, the Adviser does not guarantee the accuracy, completeness, or timeliness of such information and assumes no liability for any resulting damages. Due to the ever-changing nature of markets, the deductions, interrelationships, and conclusions drawn from historical data may not hold true in the future. This material contains certain forward-looking statements and projections regarding market trends, Fund allocation, and investment strategy. These projections are included for illustrative purposes only, are inherently speculative as they relate to future events, and may not be realized as described. These forward-looking statements will not necessarily be updated in the future. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. |
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Plural Investing - Jet2: A Value-For-Money Entrant Profitably Taking Share