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  • Writer's pictureMark Watson-Mitchell

Small Cap Catch-Up: DX, UP Global and Vertu Motors

DX (Group) (LON:DX.) – So Will H.I.G. Deliver?

The final results for the year to 1st July this year looked very good indeed.

The leading provider of delivery solutions reported a 10% uplift in revenues to £471.2m (£428.2m), while its adjusted pre-tax profits were an impressive 33% better at £26.8m (£20.2m), with earnings came out 41% better at 4.1p (2.9p) and this year paying out a 1.5p total dividend per share (nil).

DX provides one of the widest ranges of overnight delivery services in the market, as well as logistics services.

Items that DX transports range from confidential documents and valuable packages to large, awkward-to-handle freight, unsuitable for automated conveyor.

CEO Paul Ibbetson stated that:

“The Group has delivered another strong performance, above our original expectations. Both divisions (Freight and Express) contributed increased revenue, margin and profit, which supported our return to the dividend list.

We are mindful of the current economic headwinds, however, given the strong platform that we have established and the encouraging levels of new business that we have secured in the opening months of the new financial year, we look forward to another year of further progress.”

So, it makes me wonder whether we will actually see confirmation of a bid for the group, before 5pm next Monday.

On 11 September 2023, the company announced that it had received a non-binding and conditional proposal from H.I.G. European Capital Partners LLP regarding a possible all cash offer for the company at a price of 48.5p per share.

The proposal is subject to the satisfaction or waiver by H.I.G. of a number of pre-conditions, including the completion of satisfactory due diligence.

There can be no certainty that an offer will be made nor as to the terms on which any offer might be made.

It is worth noting that the analyst consensus price objective is 51p a share.

I really like the way that this group’s management has taken control of the business over the last couple of years and shaken up its act.

The business now has growing scale in both sales and profitability, so a cheap bid must be rejected.

The shares closed last night at only 42p, perhaps indicating a strong perception that H.I.G. may not proceed.

Either way I do believe that there is a good margin now on offer in its shares.

(Profile 20.02.20 @ 12.5p set a Target Price of 15p*)

Vertu Motors (LON:VTU) – Gently Motoring Away

With over 190 sales and aftersales outlets across the UK, boasting a handful of the automotive sector’s leading brands, this group should be better rated than it is currently.

Especially considering the bidding war going on at competitor Pendragon.

Wednesday’s interim results to end August from the £246m capitalised group displayed an increase in sales to £2.42bn (£1.99bn), while it recorded an 11.7% rise in adjusted pre-tax profits to £31.5m (£28.2m). Earnings per share came out at 6.89p (6.50p), easily covering the interim dividend of 0.85p (0.70p) per share.

I gather that the brand-new plates last month boosted sales, giving the group confidence that it will show results in line with market expectations for the year.

CEO Robert Forrester stated that:

The Group is very well positioned to deliver on its stated strategy and to take advantage of the increasing opportunities in the UK sector, with a good pipeline of bolt-on acquisitions.”

Analyst Carl Smith at the group’s brokers Zeus Capital has a 108p a share valuation out on the stock, compared to the current 72p.

For the current year to end February 2024 he is estimating £4.8bn revenues (£4.0bn), lifting profits to £48.0m (£39.3m), generating earnings of 10.0p (8.7p) and covering a 2.5p (2.2p) per share dividend.

He foresees even greater sale and profits going forward.

At some 7 times current year earnings this group’s shares at just 72p are looking attractively priced, certainly taking a one-year view.

(Profile 12.10.20 @ 30.5p set a Target Price of 40p*)

UP Global Sourcing (LON:UPGS) – With Finals Due In A Few Weeks, Now Is The Time To Buy

There has been a bit of a buzz created by the opening of a new showroom in Paris for this consumer homeware products wholesaler.

The new showroom is spread across a 16,500 sq. ft space at the Homexpo Paris showroom complex, where the anchor tenant is JJA, one of France’s largest home furnishing suppliers.

The site, which is near Charles de Gaulle airport, is ideally located for hosting both existing and prospective customers across France and Europe.

The £107m capitalised Ultimate Products group currently derives approximately 30% of its revenues from European countries (population: c.477m), where it has a much lower penetration than the UK (population: c.67m).

Did you know that the group sells £1.72 of product per capita in the UK and furthermore, around 80% of British households own at least one of the group’s products.

CEO Simon Showman stated that:

“I am massively excited to have opened a European showroom in Paris, which I am confident will help us grow our presence in the sizable French market.

Our products are already present in most UK households, and I firmly believe that they will be just as attractive to retail partners and consumers in France, as well as the wider European market more generally.”

At the end of this month the group will be announcing its finals to end July.

Analysts Nigel Parson and Michael Clifton at Cavendish Capital are looking for the company to report sales up to £166.3m (£154.2m), while adjusted pre-tax profits could have increased to £16.8m (£15.8m), lifting earnings up to 14.8p (14.3p) and strengthening the dividend to 7.4p (7.1p) per share.

For the current year they go for £177.7m revenues, £18.6m profits, 16.0p earnings and an 8.0p dividend.

They have price objective of 210p on the shares.

Over at Shore Capital its analysts Darren Shirley and Clive Black have very similar estimates for the last and current year.

They state that:

UP currently trades on very modest valuations, looking at an FY24F PER of 7.5x and an EV/EBITDA multiple of 5.8x.

The dividend yield for FY23F is 6.3%, with an attractive double-digit FCF yield.”

We have had some fun with this company’s shares, they hit 230p in June 2021 almost trebling my original Profile price and more than doubling my Target.

In February this year they were trading at 174p a share, after having fallen to just 96p a year ago.

Ahead of the finals later this month I consider that the shares are now capable of another run higher, from last night’s close of 120p to over 140p.

(Profile 13.07.20 @ 74.8p set a Target Price of 100p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)


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