DX (Group) – Tuffing it out, while revenues and profits delivering very well in current year
In the six months to the end of December 2022 were good for the DX (Group) (LON:DX.).
The company, which is a market leader in the delivery of mail, parcels, pallets and freight of irregular dimension and weight, enjoyed strong trading, some 15% ahead of the previous year.
It reported that customer supply chain issues had normalised, labour market pressures had eased, and costs had been managed effectively.
Accordingly, the group’s Management remains confident that the Group is well-positioned to meet its expectations for the financial year despite the economic headwinds, for the second half of the year.
First established in 1975 as a Document Exchange service to the legal sector, DX now provides one of the widest ranges of overnight delivery services in the market, as well as courier and logistics services.
DX provides a wide range of specialist delivery services to both business and residential addresses across the UK and Ireland.
The group operates through two divisions, DX Freight and DX Express.
The company’s goal is to deliver exactly to its customers’ requirements, whether via a next day, scheduled or tracked, secure service, and provide assurance through proof of delivery.
Items that DX transports range from confidential documents and valuable packages to large, awkward-to-handle freight, unsuitable for automated conveyor.
The Interim Results
The six months to end December saw the group report a 15% lift in revenues to £231.3m (£202.0m), adjusted pre-tax profits were 96% ahead at £9.2m (£4.7m), earnings per share were 160% better at 1.3p (0.5p), while the group announced a 0.5p (nil) dividend.
CEO Paul Ibbetson stated that:
"The Group performed strongly, with both divisions contributing higher revenue and expanded margins. Trading was helped by the easing of customer supply chain and labour market pressures.
We are also pleased to return to the dividend list after six years. It reflects the success of our turnaround and growth plans, which commenced in 2018, as well as our confidence in the Group's future prospects.
We are now in the second year of our £20-£25 million capital investment plan, which supports our growth ambitions and will help to drive further operational improvements and margin gains.
Trading to date in the second half, traditionally our stronger period, is in line with expectations, and we believe that despite economic headwinds, the Group is well-placed to meet its targets for the financial year."
An ‘Ugly’ delivery?
A couple of weeks ago the company was featured in an article in The Sunday Times entitled ‘The driver, the logistics firm and the 'espionage' referring to certain of its employees attempting to gain certain trade information.
It received a claim from Tuffnell Parcels Express in relation to confidential competitor details being obtained by DX in the past. The group intends to defend its position robustly and will respond to the claim in due course.
Analyst Opinion – Target Prices in 50p to 57p range
Guy Hewett at the group’s NOMAD and Joint Broker finnCap, is very positive about its prospects, putting a 57p Target Price on the shares.
For the year to end June this year he is going for revenues to have increased to £465.1m (£428.2m), with adjusted pre-tax profits of £25.4m (£20.6m), earnings of 3.7p (2.8p) and looking to pay a 1.5p (nil) per share dividend.
For 2024 he sees £484.1m sales, £29.9m profits, 4.2p earnings and a 1.7p dividend.
Over at the other Joint Broker, Liberum Capital, their analyst Gerald Khoo rates the shares as a Buy with a 50p Target Price.
His estimates for 2023 are £473m sales, £26.7m profits, 3.4p earnings and a 1.5p dividend.
For the coming year he looks for £496m revenues, £32.5m pre-tax profits, with 3.8p earnings and a 1.7p dividend per share.
Conclusion – at least a 25% upside in 2023
The group has a growing pipeline of new business and is expanding its depot network, which in turn should drive productivity improvements and importantly build up its customer service.
As long as the Tufnells situation does not get too messy, I continue to consider that this group’s shares are significantly undervalued at the current 28p.
I would reckon that there is at least a 25% upside in 2023.