Journey Group: high-flying food Journey Group provides in-flight catering and on-board products to airlines. The company is cash-rich and has significant opportunities for growth. Journey sells through two operating companies: Air Fayre (catering) and Watermark (products). In the first half of the year, revenues were roughly split two-thirds catering : one-third products. Although nearly all of Journey’s revenues are in dollars, the company reports in sterling. As a result, Journey’s numbers can swing with the exchange rate. Furthermore, like any supplier, Journey needs strong customers. This leaves the company exposed to the notoriously cyclical airline industry.
centred on meal supplies to US airlines in America The Group took on its current form following significant restructuring. In 2010, Journey disposed of its joint venture with Alpha Flight at London Heathrow, taking the company almost to a net cash position. More favourable banking facilities were then secured. Operations were streamlined further with disposals in 2011 and 2013. These changes mean that comparisons with past years lose meaning. Most of Journey’s business today and its future prospects, are centred on meal supplies to US airlines in America. This is a $2bn market dominated by two players: Gate www.aimprospector.co.uk
Gourmet and LSG Sky Chefs. Journey Group currently makes annual sales of around $40m into this market. Journey (through its subsidiary Air Fayre) operates a different supply model to its competitors. Rather than being based on site at the airport, where labour is deeply unionised, Journey operates off-site, frequently working in collaboration with hotels and restaurants. By utilising the spare capacity that typically exists in these establishments at certain times of the day, Air Fayre can negotiate a better price with its suppliers. After being prepared, the food is packaged and delivered using a set of processes that together are protected by a business process patent registered in North America. There are signs that the patent has already proved to be an effective barrier to entry, with one US airline declining to talk further with another provider that proposed a similar solution. A large proportion of Air Fayre’s revenues are effectively a pass-through on the food cost, with Journey making its money on the handling fee. In March this year, Air Fayre secured a contract to serve a second Los-Angeles airport from its local hub. The success of this operation has shown that Journey’s model is scalable. Management now wants to prove that it is transferable. The company’s goal is
to secure contracts at other American hubs in 2015 and 2016. At the end of August, Journey Group reported a net cash position of almost £4m. This cash buffer means that Journey could easily add new hub operations without requiring significant new finances. In the meantime, the company is profitable and management intends to increase shareholder dividends with time.
patent has already proved to be an effective barrier As the US airline industry picks up in a strengthening economy, I would expect margin improvement as utilisation increases. Any new hub wins would take profits to another level. Journey Group (LON:JNY) FOR Real opportunities to double/triple sales Possibly a mini-Compass Group AGAINST Small number of current customers Patent must hold up Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£17m 123p:125p 12.9 2.2% 113p:167p
Published on Dec 8, 2014