19th May 2021
On Monday of this week analyst Robin Byde, of brokers Zeus Capital, published a 22-page report on the important logistics sector.
He considers that three big themes will govern the next 18 months – recovery, technology and resilience.
Report features four stocks
His extremely good document details his sector views together with analysis of four of the its constituent companies – Clipper Logistics (LON:CLG), DX (Group) (LON:DX.), Wincanton (LON:WIN), and finally Xpediator (LON:XPD).
All four of them are within my normal viewing range for smaller quoted companies (SQC’s).
The latter three of those companies have already been profiled by myself at varying times over the last year or so – while the former has always seemed expensive when I have looked at it, which is why it has never been profiled.
Prospects for the logistics sector
I hope that Byde doesn’t mind me quoting his overall assessment of prospects for the sector.
Recovery – the settled shape of many supply chains as we exit COVID is uncertain. Online buying and B2C activity has accelerated but also traditional high-street focused B2B distribution channels will recover. Operators are focused on how to respond to a changing and more fluid demand mix; and managing higher costs.
Technology – much of the logistics world is still labour intensive and we think there is plenty of scope for efficiency gains and customer service improvements through application of technology.
Resilience – disruption, shortages and geopolitics have been weighing on global supply chains. We think trends to more dual sourcing and regional manufacturing will accelerate. This will provide opportunities for market share gain by more agile and capable operators. Conversely, consolidation of sub-scale firms will continue; with sector balance sheets in surprisingly good shape, expect more M&A.
Further growth to come
Byde considers that as we exit from the Covid-19 hassles, the UK logistics sector has been an excellent performer, outrunning the FTSE All-Share index show of +6.3%, coming in some 23.6% better over the last three months.
Looking forward Zeus Capital estimates that freight flow will show healthy volume growth this year. It sees that the global flow of parcels and pallets, air cargo and container boxes have recovered strongly, with most of the sector anticipating greater earnings this year.
Interesting to note is the fact that the global supply chain industry makes up about 5% of the world’s gross domestic product (GDP), ranging from air cargo and sea containers to local parcel delivery.
The Zeus View
Clipper Logistics (LON:CLG) –
“Looks overbought on current outlook for earnings, valuation at a significant premium. But M&A could be transformational.”
Price: 695p. Valuation: 600p. Mkt Cap: £707m. ’21 PE: 31.0
DX (Group) (LON:DX.) –
“Turnaround near complete. Further margin upside potential in Express, strong net cash.”
Price: 35.5p. Valuation: 40p. Mkt Cap: £204m. ’21 PE: 25.4
Wincanton (LON:WIN) –
“Defensive model and stronger fundamentals but likely to underperform in the upcycle.”
Price: 420p. Valuation: 400p. Mkt Cap: £523m. ’21 PE: 13.5
Xpediator (LON:XPD) –
“Better growth prospects with pan-Euro/CEE exposure. Options for M&A. Large net cash position.”
Price: 61.75p. Valuation: 70p. Mkt Cap: £87.5m. ’21 PE: 15.4
My View
Out of the four companies Clipper does not interest me at this stage.
Wincanton has value but will be slower than the rest to jack up its profits.
Xpediator has been a disappointment since my first profile, however it is staging a comeback that offers strong upside in price.
DX (Group) is showing significant growth and has such potential that it cannot be ignored.