The transport sector contains companies showing the underlying growth the market currently expects f...
The transport sector contains companies showing the underlying growth the market currently expects from telecom stocks but not the share price to match.
When, or if, the sector ever catches up no one knows but in the meantime the FTSE All Share Transport index is trading on a P/E of 13.2 times and offers a yield of 4.11%. In contrast the FTSE All-Share is on a P/E of 27.9 times and yields 3.08%.
Geoff Miller, manager of Exeter Equity Income unit trust, favours FirstGroup which has bus and train operations and owns 51% of Bristol International Airport.
He says: "An analyst told me if you saw a company's results showing 20% profit growth and 20% dividend growth you would expect it to be a telecom stock and put it on a P/E of 90 times. In fact he was talking about FirstGroup and as it is a transport stock it is on a low valuation."
On 6 March FirstGroup shares were on a P/E of 8.5 times and were yielding 4.5%. The most interesting part of FirstGroup for Miller is its part ownership of Bristol International Airport. Technically Bristol is the fastest growing airport in Britain but it is starting from a very low base. The airport has just opened a new terminal and has a potential to develop further, according to Miller.
He says: "The airport has a large catchment area and is to start transatlantic flights in the summer. Obviously it is not going to compete with Gatwick or Heathrow but I would liken it to Stansted. It should gain from economy traffic from the secondary airlines, such as Easyjet and Go."
Other bus companies which Miller has holdings in are Stagecoach and Arriva. The later yields 7.38% and is on a P/E of 5.8 times. Stagecoach shares have fallen by 40% since the start of the year and are currently on a P/E of 7.8 times and yielding 7.8%.
Elsewhere in the transport sector Miller likes Associated British Ports (ABP). Last year the company expanded into the US and "bit off more than it could chew" but this problem is now being sorted out, according to Miller.
He says that the company's shares look attractive as they are trading at a discount to the asset value. He adds: "It is involved in property development, such as Cardiff docks, and has scope for further redevelopment projects as it owns a lot of surplus land."
Since the start of the year ABP has fallen by 17% and currently yields 4.6%.
While Exeter is overweight the sector Johnson Fry is underweight characterising the sector as achieving low growth by employing a high degree of capital and being pretty poor value for shareholders.
Chris White, UK income manager at Johnson Fry, says: "Transport is a highly competitive area a lot of capital is employed to produce relatively low returns. It is difficult for a company to grow its topline and then grow it consistently."
The only stock which the group has exposure to is P&O yielding 4.88% and on a P/E of 15 times. White says: "The company is in the process of splitting its cruise division from its ferry operation. This should crystallise shareholder value bearing in mind cruising is a growth business."
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation