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Eddie Stobart's growing pains

The group has tried to expand its capabilities and new contracts, but this has come at the expense of margins
March 29, 2019

Expansion comes at a cost – at least initially. Since it went public in 2017, Eddie Stobart Logistics (ESL) has been broadening its capabilities and haulage capacity through a series of acquisitions, culminating in a £52.8m deal to bring The Pallet Network within the fold. The West Midlands-based firm, as its name suggests, has given the group a presence in the pallet distribution market across the UK and Ireland, while enabling it to respond to increased customer demand for next-day, less-than-a-truckload freight deliveries. The deal has enhanced the group’s commercial proposition, its ability to provide integrated logistics services for its clients, in addition to building scale, but the associated growing pains are evident in the balance sheet, net cash-flows and at the margins.

IC TIP: Hold at 100p

A rise in intangibles was to be expected, but it was accompanied by a 55 per cent increase in receivables to £231m, the impact of which fed through to a net cash outflow at the operating level, against an adjusted profit of £37.5m. The ability of the enlarged group to match cash flows to profitability will become clearer once the acquired assets are bedded in, but with £5.2m in cash at the period end and borrowings amounting to £35.9m repayable in FY2019, the group may have to tap the revolving credit facility (net debt rose by 46 per cent year-on-year to £159.6m).

Naturally, the group’s rapid development is also evident in the rate of revenue growth, although given that logistics is essentially a volume trade, commercial pressures are more evident in the margin. All of Eddie Stobart’s divisions reported sales growth, most noticeably the e-commerce division, where sales were up 65 per cent to £171m, buoyed by the contribution from the iForce acquisition. It also won £162m-worth of new contracts, including deals with PepsiCo, Walkers, BritVic, Cemex and Tarmac. But the underlying cash profit margin fell from 7.8 per cent to 6.6 per cent as money was spent on setting up the infrastructure needed to support new contracts won during the first half of the year.

EDDIE STOBART LOGISTICS (ESL)  
ORD PRICE:100pMARKET VALUE:£ 377m
TOUCH:97-100p12-MONTH HIGH:147pLOW: 83p
DIVIDEND YIELD:6.3%PE RATIO:23
NET ASSET VALUE:62p*NET DEBT:68%
Year to 30 NovTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014**3476.6nana
2015**4966.1nana
201657011.23.3na
20176249.91.25.8
201884323.64.46.3
% change+35+138+267+9
Ex-div:10 May   
Payment:07 Jun   
*Includes intangible assets of £312m, or 82p a share