SKYH - Sky Harbour Group: A Stock To Capitalize On The Ultra Rich

2023-05-31 08:16:14 ET

Summary

• Sky Harbour Group leases hangars to the rich and ultra-rich and provides associated services.
• The company intends to significantly expand in the coming years.
• I mark shares a buying opportunity for investors looking to capitalize on the ultra-rich.

There are many ways to accumulate wealth. One way is to look at what the rich are doing and apply the translation/interpretation, imitation and emulation principle where one translates or interprets, imitates and as a final step tries to do things better. Another way by simply investing your money in whatever services and products the rich and ultra-rich need. Think about private jets but also liquors, fashion items, watches, expensive bags amongst others which makes Moët Hennessy - Louis Vuitton ( LVMHF ) worth considering. In this report, I will be analyzing Sky Harbour Group ( SKYH ) and see whether that name is worth considering for investment.

About Sky Harbour Group

Sky Harbour describes itself as an aviation infrastructure development company building the first nationwide network of Home-Basing Solutions (“ HBS ”) for business aircraft. Sky Harbour develops, leases and manages general aviation hangars across the United States, targeting airfields in the largest growth markets with significant aircraft populations and high hangar demand. Sky Harbour’s HBS campuses feature exclusive private hangars and a full suite of dedicated services specifically designed for home-based aircraft.

Putting it really simple, Sky Harbour leases hangars to general aviation and private jet owners as well as associated services.

The company currently has 29 hangars in Houston, Miami, Nashville, Dallas, Phoenix and the Denver area with occupancy standing at 60%. Another 56 hangars are scheduled to be completed between 2024 and 2026 adding 2.25x the current square footage. So, Sky Harbour bets big on demand for home basing private jets and making things as comfortable as possible for business jet owners.

The company also works with a smart principle allowing lights, fans and doors to be controlled via an app. The app also allows users to request additional services and 24/7 surveillance. So, it looks a lot like a smart home setup but for hangars. I am pretty sure the business jet owners are big fans of having the ability to conveniently arrange everything from the app.

A Look At The Results For Sky Harbour Group

Revenues are up 180% year-over-year and 82% sequentially. As can be seen the company is still loss making but with a 60% occupancy rate and full occupancy expected in Houston, Nashville and Miami things are looking promising. Furthermore, the acquisition of RapidBuilt which manufactures pre-engineered metal buildings provides a vertical integration which can benefit the cost of expansion for Sky Harbour.

On the liquidity side, I also don’t see major issues. Operational cash flow was negative $4.5 million from negative $10.2 million a year ago. As the company scales, it should see the cash flow improve materially. Furthermore, the company has cash and investments of $166.155 million. Its contractual obligations look quite manageable with only $5 million this year and $18.5 million in 2024-2025 and 2026-2027. The only “issue” is that nearly $145 million in restricted cash and investments which is held for interest payments for the Series 2021 PABs. So that gives the company roughly $20 million in unrestricted cash and equivalents and means that cash flow from operating activities should significantly improve to prevent any liquidity issues, but with full occupancy expected, I would also expect that the cash flow will materially improve.

Is Sky Harbour A Good Stock To Buy?

I view Sky Harbour as an investment opportunity focusing on capitalizing on the ultra-rich. Instead of the ultra-rich capitalizing on you, you can capitalize on them as Sky Harbour caters to their needs and habits. I would mark shares a speculative buy on their expansion in rentable square footage and the expansion projects that are planned in the coming years. As the hangars are rented to wealthy individuals and most likely also to companies, I don’t see any non-payment issues. The risk for Sky Harbour is that demand is not there for their product, but from what I have seen the care-free homebase solution is something that should really appeal to clients.

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