Forget buy-to-let! I’d buy and hold this company with high growth potential instead

Aviation support group BBA Aviation (LSE: BBA) had good news for its investors last month. It said trading remained in line with expectations, with revenue for the first four months of 2019, up 23.1% year-on-year, reflecting both organic growth and the acquisitions of EPIC, Firstmark and Ontic licences during 2018. Like-for-like revenue at the aviation support company was up a more modest 1.1% at constant currency rates, adjusting for fuel prices and before acquisitions.

The market opportunity

While airline share prices may be falling, after a bad end to 2018 for BBA’s share price, this year is going much better. And market trends suggest future growth potential for those companies that support the industry. In October 2018, The International Air Transport Association (IATA) revealed that present trends in air transport suggest passenger numbers could double to 8.2bn by 2037. 

The shares

The share price is up 22% so far in 2019, but with it currently at 268p, this is well below the 368p 2018 high that was seen in January last year. The shares now have a P/E of around 16 and offer a dividend yield of 4% and I think now could be a good time to invest. 

The future

Given BBA offers a range of services, it’s well placed to capitalise on the growth in the industry. Its history of acquisitions and success in integrating them means I wouldn’t be surprised to see more merger and acquisition activity from the group to further boost growth and extend its market leadership position. In its 2018 annual report, the word “acquisition” appeared 195 times showing just how important it is to the company. CEO Mark Johnstone highlighted that its Ontic division, in particular, would be grown via selective, smaller M&A deals.

Overall the group achieves about 90% of its revenues in North America, showing there’s plenty of room to grow in the rest of the world. IATA says that the industry will move eastwards, with China and India both forecast to grow exponentially, so a greater concentration of resources there (perhaps by acquisition) could help BBA grow more quickly.  

Currently, the Signature division (accounting for 90% of revenues) has no strong foothold in Asia so this is an area that could be strengthened. At present, it’s based mostly across North America, Central America and the Caribbean. 

The final word

All in all, I like the look of BBA from an investor’s point of view. It operates in a growing sector, has market-leading positions, has global potential, diversified income streams, opportunities for organic growth and is likely to acquire further growth. Given that the shares haven’t recovered from their fall at the end of 2018, but do have some upward momentum, now could be a good time to grab a slice of the company.