Clipper delivers further growth

Clipper Logistics (CLG) is enjoying a bumper period. The group, which serves a host of big-name retailers, has reported growth across both of its major divisions and is now eyeing up acquisition opportunities.

Much like its rival Wincanton (WIN), Clipper focuses on ‘value-added’ logistics. Warehouse management, picking, packing and dispatch are all part of its remit, distinguishing it from low-margin distributors. Its business model seems to be working: both e-fulfilment and non-e-fulfilment arms saw profits jump, and management has reported a host of new contracts with the likes of JD Sports, John Lewis, Mountain Warehouse and Wilko. 

Looking beyond Europe, it has also entered into a joint venture agreement with a luxury fashion retail platform called Farfetch, which will initially target new US and Asian markets. 

Management attributed the strong performance to the reopening of bricks and mortar shops and the rise of online retail. Given that around 60 per cent of Clipper’s sales come from e-fulfilment, our ever-growing love of internet shopping should prove lucrative.

That’s not to say there won’t be hurdles along the way. Logistics is increasingly competitive and the margins aren’t generous - whether or not you’re adding value for customers. Sudden extra costs or impairments could prove painful.

A large portion of Clipper’s assets consist of trade and other receivables, and last year it suffered a £7.7m impairment after a client went into administration. After considerable state support over the last 20 months, the retail sector could yet see fresh disruption that in turn hits Clipper's balance sheet.

Meanwhile, labour shortages are still an issue, which could force up wages and pinch profitability. 

Clipper shares now change hands on 26 times FactSet-compiled consensus earnings forecasts the year to April 2022, and 25 times for FY2023. Those predictions already look upbeat. Hold. 

 Last IC View: Hold, 816p, 25 Aug 2021