Google Finance
Filing
Sept. 05, 2017
Q3 2017, Year end Aug. 31th.
Current Price: $0.155, Cap: $2.5m
1.Basic Information
(1) History .
The company was founded by Daniel Sitnam(current CEO), a previous pilot, together with Alistair MacLennan(Current Chairman) at 1986. It offers scheduled fly service between Vancouver Harbour to Victoria Harbour of the Vancouver island. The company grew its revenue to $13m at 1997, and grew to $24m at 2007, and to around $35m at 2016.
The company did quite well previous to the year of 2001. Incurred several million in losses from 2001 to 2005, it wiped out all the gains it had previously. It had small profit from 2006 to 2008, then had a $2m in losses at 2009 again. From 2010 to 2016, the company remain profitable and recovered all the deficit it had which were around $4m. Also starting 2010, it invested again in buying PP&E. In 7 years invested over $9m in PP&E. By taking close to $6m in debt.
(2) Business related:
Currently, the company operates 14 helicopters and 2 small turbojets.
1) Bussiness sector:
Contracted: The medical ambulance service currently counts around 43% of revenue. The revenue seems more fixed. I think the margin should be higher since less competition.
On-demand: Scheduled service and charter service. Revenue more unstable. It has 2 major lines
A) Vancouver Harbour to Victoria: around 35 minutes, ticket per trip around $200 to $250.
B) Vancouver Harbour to Nanaimo: around 25 minutes, ticket per trip around $100 to $150.
The company is the first to include 2 engines and 2 pilots in its helicopter. This improved the safety.
2) The last quarter ( Aug 31) seems its best quarter each year because it is summer peak season.
3) The company has quite a good review for its flight service by its customers.
4)The company says a decrease in value of CAD$ to USD$ will hurt its profit because it purchases parts in USD$. However, 2014 to 2016 it still did quite good with low CAD$ to USD$. Currently, the CAD$ raised a lot. Should be a plus for the company.
(3) Management.
Daniel Sitnam is the founder and the key person in this company. He seems to manage the company quite well for its quite hard to operate an airline business. Although in the 2000's the company was doing not that well, but in the last 10 years (Since 2007), except for 2009, the company grew quite well.
(4) Debt and Credit Facility.
Current debt is around $6m. Total interest payment is around $700k for 2016. Currently, around $1.4m of it bears interest of 14%. Rest is around 5.58% + float rate. I guess it should be 8% effectively.
(5) Insider holding, options, Insider trading info, share buy back.
MacLennan holds 8.9m shares.
Together they hold over 10m share. Over 60% of the total.
(6) Employee numbers
Around 160 at Q3 2017.
(7) Industry comparison.
West Coast Air: Originally independent and was acquired by Harbour Air at 2010.
The seaplane airline seems a direct competitor to the company. However, seaplane might be more limited in the low light environment. The major point HJI started the airline is to compensate the unflyable time of seaplane. It does have a concern for competition and I think the margin for this might be very low.
(8) Major events
At Oct. 2010, it signed a new 8-year air ambulance contract with the BC government which might expire at some time at 2019.
2. Financial data.
3. Valuation
(1) The whole decade from 2001 to 2010, the company was doing very well with big losses at 2002 and 2009. However, after 2010, it did quite well. In the past six years, it had accumulated $4m in profit which is much higher than current $2.5m Cap.
(2) Currently, the company generates around $2.5m in EBITDA, around $500k in CapX. $700m in Interest payment. $300k in tax. That leaves around $1m in after tax income. P/E ratio is really low. From EV/EBIDTA point, if using 5 times EV/EBIDTA, its EV should be $12.5m which suggested a $5.5m market cap. It is more than double the current price.
(3)If the company can reduce debt and save interest payment, it may do much better than current.
4. Risk
(1) The company keep taking debt which makes debt/equity ratio really low. It is highly leveraged. If thing goes wrong, it could be in trouble with the high debt load.
(2) When the economy went bad, it suffered big losses over $2m/year at 2002 and 2009. It is likely to have the same issue in future.
(3) Generally airline business is a pretty bad business. As this company has almost not grown its equity since IPO. However, the medical part of the business is the bright side which is more profitable.
5. Conclusion
Overall the company seems been managed better after 2010. Current price is quite cheap. However, it is quite a risky one if something goes wrong. Also, the current debt level is quite high, it should reduce it.
6.Links
