- Business trading ahead of 2021 profit estimates.
- European freight forwarding and logistics continue to perform strongly.
- Pall-Ex (Romania) franchise has record first quarter.
- Business is a net winner from Brexit.
Braintree-based international freight management services group Xpediator (XPD:65p) has released a bullish trading update to shareholders at its annual meeting.
Operating from 38 offices in the UK and nine central and Eastern European (CEE) countries, Xpediator offers more than 14,000 clients integrated freight management within the supply chain logistics and fulfilment sector in three main areas: freight forwarding, logistics and warehousing, and transport services. Xpediator’s key markets – Baltic states and CEE account for 63 per cent of revenue – offer superior growth prospects compared with the rest of Europe, thus underpinning demand for its services.
For example, European freight forwarding and logistics continue to perform strongly alongside Xpediator’s Affinity Transport Services business which provides bundled fuel and toll cards, financial and support services for hauliers in Southern Europe. The operations are all delivering like-for-like sales increases, particularly against those months in 2020 which were impacted by Covid-19. Moreover, the group’s Pall-Ex (Romania) franchise, a fast-growing palletised freight distribution network offering 24-hour delivery across the country, has handled a record number of pallets during the first quarter of 2021. Average monthly pallet volumes increased 13 per cent to 68,000 in 2020, and hit a record 87,000 in March, an indication of the momentum in that business.
As I noted when I initiated coverage at 45p (Alpha Report: Profit from a Brexit winner’, 19 February 2021), Xpediator is a Brexit winner. While cross channel freight forwarding volumes have been lower, reflecting the decisions by some clients to find alternative sourcing arrangements than the UK, the additional paperwork associated with the new custom control processes has led to additional revenue and the net result has been positive for the group. Also, as UK agrees more trade deals with non-EU countries, then demand for freight volumes at key ports handling non-EU trade, Felixstowe and Southampton being two major ones, are set to increase.
Xpediator’s management is ahead of the game, having just completed a new purpose-built 200,000 square foot facility at Southampton's Container Port. The new space will not only increase capacity, but it is expected to be more efficient and deliver £0.25m to £0.5m of annual cost savings.
When I interviewed chief executive Robert Ross at the annual results (‘Three under the radar recovery plays’, 12 April 2021), he was confident of achieving house broker Cenkos Securities’ 2021 pre-tax profit forecast of £7.7m and earnings per share of 4.8p, up from £7.2m and 4.6p, respectively, in 2020. It looked an easy beat to me given that £0.5m of operational savings will benefit the 2021 result, and Xpediator has removed a further £0.35m of operating losses following the disposal of its business-to-consumer logistics service EshopWedrop at the tail-end of 2020. The directors repeated their upbeat guidance at this month's annual meeting, noting that the “business is well placed to exceed market forecasts for 2021”.
Trading on a cash-adjusted forward price/earnings (PE) ratio of 12.5 after adjusting for net cash of £6.8m (4.8p a share), and offering a 2.2 per cent dividend yield, the rating is modest for a company with the earnings risk heavily skewed to the upside. In fact, I would not be surprised at all to see Xpediator outperform analysts’ pre-tax estimates by 10 per cent, implying 18 per cent year-on-year growth. I am upgrading my target price from 70p to 85p. Buy.
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