YB new stock pitches (Tue, Mar 25)

Jet2 plc (JET2.L), the UK's largest tour operator and a low-cost airline, demonstrates strong performance with 17.72m passengers in FY24, an 89.81% load factor, and impressive unit economics of £353.01 revenue and £24.16 operating profit per passenger. The company's vertically integrated business model, combining Jet2.com (airline) and Jet2holidays (tour operator), outperforms peers like Ryanair and On the Beach in key metrics. Jet2 has experienced robust growth, with a 16.1% revenue CAGR and 23.3% net income CAGR since FY19, reaching £6,255.3m and £399.2m respectively in FY24. The company's strong customer reputation is evident through high ratings on review sites. Currently, Jet2 offers attractive valuation metrics with a 13.5% earnings yield, 23.3% free cash flow yield, and 2.1x price-to-book ratio. While near-term economic headwinds pose potential risks, the current valuation is considered to adequately compensate investors for these challenges.

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Tandy Leather Factory (TLF), a niche leathercrafting retailer with 102 stores, trades at a 29.2% discount to its adjusted Net Current Asset Value of $4.20 per share. The company has $16.3 million in cash, no long-term debt, and is 60% insider-owned. TLF recently sold its headquarters for $26.5 million and issued a $1.50 special dividend. The business is resilient against Amazon due to its hands-on nature and loyal customer base. Risks include thin margins and high inventory levels. Despite a 2.4% revenue decline in 2024, TLF remains profitable with consistent free cash flow. Management has been reducing store count, improving per-store economics, and implementing a $5 million share buyback program. At $2.98 per share, TLF trades below its liquidation value, presenting a potential opportunity for patient value investors.

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Zigup Plc (ZIG.L), a UK-based fleet services company, is trading at 6x P/E with an 8.5% dividend yield and 67% of book value. With a £700M market cap and £200M in free cash flow, the company boasts a 14%+ ROCE and has grown revenue by 50% since FY22. ZIG appears undervalued compared to peers like Element Fleet Management (21.7x P/E) and Donlen (10x EBITDA). The company offers a range of services including repair bays, fleet management, accident management, telemetry, EV charging, and vehicle disposal. Despite strong underlying EBIT growth and ROCEs, recent share weakness stems from declining disposal profits and challenges in the Claims and Services business. CEO Martin Ward has expressed frustration with the valuation, suggesting potential catalysts such as a large buyback, private equity bid, or activist involvement. Risks include UK economic malaise, normalizing disposal profits, and ongoing difficulties in the Claims and Services segment. The company's low leverage (1.6x) provides flexibility for buybacks or attracting private equity interest.

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