Eddie Stobart Logistics (ESL) is back on the public markets. In a sense, it never really went away: three years ago, former parent company Stobart Group (STOB) sold a 51 per cent stake in the truck company to private asset manager DBAY, and held on to the rest. ESL re-joined Aim on 25 April, raising £122m of new money in a deal that gave the company a £573m market capitalisation, equivalent to 160p a share. DBAY and Stobart reduced their shareholding to 30 per cent in the process.
It’s always important for investors to carefully analyse what has happened to companies that have passed through multiple ownerships. In the past three years, ESL has expanded its fleet and taken on some debt in the process. As chief executive Alex Laffey explained to us, reducing the balance sheet leverage is the primary focus of the Aim listing; indeed, fundraising proceeds will be used to repay around £39m of bank debt and £35m of shareholder loans. A further £45m has been set aside to acquire supply chain management business iForce, giving ESL further ballast in the fast-growing e-commerce logistics market.
Potential investors will also want to know why DBAY and Stobart are cashing out now. According to Mr Laffey, DBAY’s ownership horizon was always four years, so there should be little surprise in the timing. Stobart Group is also undergoing a protracted period of asset monetisation, in order to support its high payout rate and invest in its core energy, aviation and rail businesses.
For an Aim float, the fundraising has attracted some big name backers, including the investor arms of AXA, Invesco and Schroders. Neil Woodford's Woodford Investment Management has also gone big, taking a 19.9 per cent stake, equivalent to around £114m, suggesting the fund manager’s newly-capitalised Income Focus portfolio plans to source at least some of its income from the haulage group.
Indeed, dividends will be a big target for the new Aim constituent. According to the admissions document, the board is initially targeting an aggressive payout ratio of around 55 per cent in its first year, estimated at a yield of approximately 3.6 per cent on the listing price of 160p.
The differentiators for ESL, argues Mr Laffey, are the company’s brand, size and its pay-as-you-go, shared user model, which means ESL owns its trucks and can therefore co-ordinate journeys to accommodate multiple customers at one time. Growth could also be bought, should the company find earnings accretive opportunities in the highly fragmented UK haulage sector, although plans for a pan-European operation obviously face risks pending the hit Brexit will make to trade and the economy.
