FTSE350: Industrial transport valuations soften

With the benefit of hindsight, and regardless of the individual factors that led to each subsequent share price decline, the sector was expensive this time last year. Neither moving goods nor servicing the fleets that move those goods are particularly disruptive industries known for their exponential earnings growth. As such, a peer group price/earnings ratio of 20 was always going to come unstuck once operational challenges reared into view.

And rear into view they did. For Stobart Group (STOB), problems arose in the shape of a boardroom spat, and the sudden downgrade of dividend forecasts after several years of canny infrastructure asset sales and dealmaking. Clarkson (CKN), which likes to think of itself as the Goldman Sachs of the sea, ran aground when clients’ concerns over the escalating trade war sank transactional volumes, shipbroking margins and profit forecasts.

Elsewhere, Royal Mail Group (RMG) saw margins contract at its normally reliable (and more defensive) international logistics arm, while BBA Aviation (BBA) had to suck up restructuring charges and a weak US private jet market. For both stocks, bad news was magnified by the autumn sell-off in equities.

Consequently, one might argue that sector valuations better reflect the realities of choppy global trade, a strengthened dollar and a sometimes fickle customer base. Indeed, we would probably expect Clarkson or BBA to re-rate from their current level, should peace break out between the US and China. But such hopes feel fanciful, and valuation opportunities elsewhere are less tangible.