Clipper Logistics boosted by 'sticky' client base

Everyone knows the lockdowns have further accelerated the growth in online retail, but a general shift in consumer preferences doesn’t guarantee positive outcomes for companies engaged in efulfilment and returns management.

Management at Clipper Logistics (CLG) sets great store in developing detailed support partnerships with clients ranging from Asos to Wilko. What the company describes as a “flexible, technology-led end-to-end proposition” has not only driven new business in the six months to 30 April, but is entrenching commercial relationships with existing clients, evidenced by the record volumes achieved in its ‘click & collect’ joint venture with John Lewis.

However, it’s an increasingly crowded segment of the market, so margins are far from extravagant. Though Clipper delivered a one-fifth increase in operating profit to £37.3m, the underlying margin contracted by 87 basis points to 5.36 per cent. Profitability was held in check by increased wage costs and employee numbers, rising depreciation charges and a £7.7m impairment on trade receivables after one of its clients went into administration.

That last point is worth considering. Clipper’s 40 per cent increase in trade receivables is commensurate with its revenue growth, but the company is providing services to a sector that has seen its fair share of distressed assets in recent times. Many retailers have splashed the cash to build an online presence, but success in this area can prove elusive.

With increased volume capacity, it would be reasonable to expect further growth, but the focus for investors is on underlying margins. The share price has nearly doubled over the past year and the company now trades at 29 times FactSet consensus earnings. On balance, a reasonable rating despite the undoubted momentum. Hold.  

Last IC view: Buy, 595p, 25 Mar 2021