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On course for bumper profit growth

Braintree-based international freight management services group is delivering strong organic growth from freight forwarding and its palet businesses, and looks set to exceed full-year profit estimates.
On course for bumper profit growth
  • First half adjusted pre-tax profit up 74 per cent to £3.6m on 27 per cent higher revenue of £126.6m.
  • Freight forwarding key driver of growth.
  • Annual pre-tax profits expected to exceed £8.5m, up from £7.2m in 2020.

In late June, Braintree-based international freight management services group Xpediator (XPD: 67p) raised full-year pre-tax profit guidance by more than 10 per cent to £8.5m. The earnings risk is still skewed to the upside as the directors only need to repeat last year’s second half performance to hit forecasts.

In the first half, Xpediator’s freight forwarding operating profit (pre-central overheads) surged 54 per cent to £4.1m on 28 per cent higher revenue of £101m buoyed by more mature businesses in Lithuania and Bulgaria, higher sea rates (which are passed on in full to customers), and extra UK customer clearance work for clients post Brexit.

The group also benefited from £0.4m higher operating profit contribution from its Affinity brand which provides bundled fuel and toll cards and transport services (ferry bookings, insurances and VAT refunds) to 2,000 Eastern European hauliers and 14,500 lorries. There was good news from Xpediator’s Pall-Ex (Romania) franchise, a fast-growing palletised freight distribution network offering 24-hour delivery, which is moving 78,000 pallets of freight each month, up from 67,000 in the first half of 2020. Warehousing activity in Romania is robust, too, operating profits from that business rose by 60 per cent and could hit £0.6m for the full-year.

Admittedly, start-up costs for Xpediator’s new 200,000 sq ft facility at Southampton proved a drag and meant that operating profit from logistics and warehousing activities declined by a third overall to £0.4m, but the pipeline is strong and the seasonality of the business supports a second half rebound. Importantly, the first half working capital build – net cash of £6.7m reversed to net debt of £1.6m – is unwinding. The negative movement reflected higher advance supplier payments to secure drivers and lorries, increased freight rates, delays in client payments linked to acceptance of Brexit related charges, and a change in operational system within UK freight forwarding finance. Cenkos Securities pencils in year-end net cash of £3m.

I initiated coverage at 45p (Alpha Report: Profit from a Brexit winner’, 19 February 2021), and the share price almost achieved my 85p target after the directors raised guidance 11 days after my last update (‘Primed for a major earnings beat’, 14 June 2021). The pull-back since July is overdone. Priced on 10 times operating profit estimates to enterprise valuation, representing a 37 per cent discount to sector peers, the shares rate a buy.

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