Equities  

Trade of the week: UK

The strongest contributor to performance during May was our only non-UK investment, Aer Lingus, the Irish national airline, with the shares rising by 15 per cent.

The value case for Aer Lingus remains extremely strong. The business’s market capitalisation still trades at a significant discount to its tangible asset value.

There are two principal assets of value in the company: €740m (£632m) of planes and an extremely strong balance sheet with approximately €400m of net cash. The company also owns some very valuable slots at Heathrow.

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Aer Lingus is a profitable and cash-generative business and on consensus numbers is forecast to make €150m of earnings before deductions in 2013.

During the month there were two pieces of important news. Firstly, the UK Competition Commission announced that Ryanair may have to reduce its 29 per cent stake in the business. We believe there are many potential buyers of this holding, both as investors and strategic partners, and it could be a catalyst for unlocking intrinsic value in the company.

Secondly, since its initial public offering, Aer Lingus has been hindered by potential exposure to an airline superannuation pension scheme. A labour court has now clarified this, giving investors greater certainty on the company’s valuation. We feel in time the shares could trade closer to their replacement cost.

George Godber is co-manager of the CF Miton UK Value Opportunities fund