The surprising aviation success story: How PTB soared during lockdown

The coronavirus pandemic has impacted businesses in a variety of ways, some predictable, and some very surprising. Predictably, airlines have been hit hard, but surprisingly, one business that provides maintenance and other services for aircraft, PTB Global (ASX:PTB), has had a record year of earnings.

PTB Global sell turboprop engines, as well as providing maintenance and repairs and spare parts. It is the leader in this niche space, with a substantial operation in Australia and the USA. It also has two other divisions. An aircraft leasing division and an International Air Parts division which trades in aircraft, engines, airframes and airframe parts.

The small aircraft that PTB support are used for a variety of purposes including tourism, freight, corporate and government. The pandemic has impacted many of these areas, with reduced aircraft usage resulting in less need for maintenance and support.

About 20% of PTB's revenue is derived from end-users in tourism, and this is primarily aircraft in the Maldives. Tourist arrivals in the Maldives plunged 58% in financial year 2021, compared with 2019, however this has now started to rebound with the Maldives having re-opened to tourists. Customer demand looks set to increase with an additional 18 engines added to the engine management program for Trans Maldivian Airways.

Revenue across Australia, New Zealand and Papua New Guinea also fell by 20% but is expected to start recovering in the second half of financial year 2022.

But the COVID rebound narrative is not the main story with PTB. Revenue in their US business grew by 68% in 2021, largely on the back of the integration of the acquisition of Prime Turbines and now represents more than 50% of total revenue. In July this year the company also concluded the acquisition of United Turbines in the US for $4.3 million, which will significantly expand its US capability. It is still on the lookout for further acquisition opportunities in the US. This latest acquisition also opens the door to customers in South America. The CEO temporarily relocated to the USA to manage the US business expansion.

Despite being a relatively small business with a market capitalisation of only $118 million, PTB is very profitable. This year it generated net profit of $16.7 million. This included gains from the sale of a building it owned in Warriewood, Sydney, but stripping that out it still made $11 million in profit. That is a net profit margin of about 13%. It also recently sold their Brisbane premises and leased it back.

An important consideration when considering an investment in a small company is the risk profile. PTB has a strong balance sheet, it has been using its operating cash flows along with the proceeds from property sales to pay down debt as well as fund acquisitions. It has reduced its net gearing to under 12% and retained $21 million in cash at June 30.

It has also been paying solid fully franked dividends and is currently trading at a dividend yield of 5.4%. It is also undertaking an on-market share buyback.

Following the release of the strong profit result at the end of August, the share price rallied by 40% to hit a high of $1.05. It has since retracted to $0.92. It is trading on a historical PE ratio of 15.

PTB has proven to be resilient in the face of what was probably the largest challenge the airline industry has faced. Having come through that with a strong balance sheet, it is now well-positioned to benefit from the rebound in global aviation. At the same time it is expanding in the world's largest market, the USA. It also has the necessary accreditations in a highly regulated industry.

As a business that is already generating strong profits, it has limited downsides as an investment, while providing exposure to the potential upside through the re-opening and expansion.

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