Fuel price rise hits cash flow at Eurowag

European truck payment and mobility platform WAG Payment Solutions (WPS) has announced its first full set of results since it listed on the London Stock Exchange. The company's software allows truck drivers to pay for fuels, tolls and taxes as well as providing smart routing services. The company's fate is therefore tied to the number of trucks on the road. More driving means more fuel payments and more money for Eurowag.

The company, known as Eurowag, delivered strong results despite the economic uncertainty in many of its markets. Net sales for the year increased by 19 per cent while adjusted cash profit grew by the same amount.

When you look under the bonnet of the adjusted numbers, though, things look a little less rosy.

Cash profit decreased 15.3 per cent to £46.9mn (£39.2mn) due to one-off expenses including €12.9mn of IPO costs and €6.4mn of share-based compensation payments.  

More importantly for cash generation there was a big increase in receivables to €301mn from €236mn last year. This meant that there was an operating cash out flow of €9.57mn having had a cash in flow of €86.7mn last year.

The reason for the big increase in receivables was because of a higher number of overall transactions and an increase in the price of fuel. Eurowag has to purchase the fuel and then sets the price of contracts for its clients accordingly. It can set the price independently from suppliers – but if fuel prices are higher it means that more capital is tied up in the business.

Increased fuel prices shouldn’t be a problem for margins because it can pass costs straight on. However, there could be a risk that if any of its clients went bankrupt and could not pay contracts that Eurowag would be caught short.

Another issue to keep an eye on is demand for goods. Last year, the huge demand during the pandemic meant hauliers could set higher rates. However, if a high cost of living kicks in this could reverse if less money is spent on discretionary goods imported from abroad.

Broker Numis acknowledged that “energy supply shortages could impact industrial production and mobility”. Eurowag’s management has kept its 2022 guidance unchanged, “assuming no worsening of the current environment”. This seems quite optimistic.

At a forward PE of 15.4 the shares are not overly expensive and the trucking industry is not about to collapse. Inter-European trade is going to continue. However, there might be some medium-term headwinds to deal with and the company's working capital levels aren’t ideal. Hold.