Xpediator PLC

http://xpediator.com/ TICKER: XPD     EXCHANGE: AIM

Xpediator Plc is an integrated freight management business operating in the supply chain logistics and fulfilment sector across the UK and Europe with a particular focus on, and expertise in, CEE countries.


Cost of growth
Published: Oct 07 2019

To us, there are three standout features within Xpediator’s interim results: significant investment for growth, revenues broadly in-line with previous expectations and short-term difficulties across a few of the business areas. 
Sales of £102.4m are in-line with prior expectations, given the H2 trading bias. However, whether facilities are filling capacity slower than initially expected, or due to temporary disruptions, margins were squeezed in some instances. The investment in management and IT has markedly increased the cost profile of the business, albeit it has cemented the foundation for future growth. 
It has been an eventful year to date. Management has looked to invest in the infrastructure of the business, to facilitate future growth and remove potential bottlenecks. While this approach is likely to pay dividends over the longer term, there have been short term cost implications. Also, disturbances within some businesses during H1, due to either temporary closures/disruptions or capacity filling at a slower than expected pace, had a knock-on effect on margins and adj. PBT/EPS. As a result, we have reduced our dividend estimate, with the new expectation covered 3.4x and equating to a forward yield of 3.5%.
Despite the disruption to some of the Group’s operations, revenues are trending in-line with prior estimates. This is encouraging. That said, in the face of Brexit and the higher than anticipated cost base, we have reduced estimates for adj. PBT/EPS further. Management has guided on the adj. PBT outcome for FY2019F of £5.0m and because of the H1 result; a traditional H2 bias to sales, and temporary disruptions cleared, we believe this to be very achievable. Looking further forward, we prefer to take a very conservative stance and suggest 5% top-line growth into FY2020F and broadly static margins. We have assumed that dividend growth is likely to be progressive from here. 
We have built several valuation models for Xpediator, of which the peer group comparison is the most bullish. The average when including a three-stage dividend discount model and a DCF amounts to a fair value of 53p / share. In addition, one should bear in mind that net cash amounts to 12.4% of the current market capitalisation, rising to 15.5% by the end of FY2020 on our forecasts. 
Tougher trading
Published: Jul 30 2019

Previously we have highlighted the scale of the investment programme being undertaken in the business during 2019. This investment in headcount and IT infrastructure has been accelerated in order to reflect opportunistic events, notably a large customer providing notice on an existing contract and preparations for a ‘no deal Brexit’. Unfortunately trading in several businesses has failed to match previous expectations, which would have otherwise covered the rising costs. 
The E-commerce division has suffered the most in terms of trading, with approximately half of the reduction in divisional EBITA due to the investment required by a large forthcoming contract framework with a sizeable customer. The combination of the higher costs associated with expanding the number of geographies within the franchise network for EshopWedrop and flat revenues have resulted in a modest reduction in profitability versus previous expectations. 
Within the Logistics division, more than half of the divisional profit shortfall reflects the decision by a customer of Delamode UK to exit the Group’s large facility in Braintree, Essex. As a result, management has decided to upgrade the facility to enable higher margin fulfilment capability, replacing the current low margin storage offering. Unfortunately, in the meantime the facility will need to temporarily close in order to carry out the upgrade. 
Trading elsewhere has performed at least to budgeted expectations. Both Anglia Forwarding and Pallex Romania continue to perform strongly, with the recovery at Benfleet ongoing. The smallest division, Affinity Transport Solutions continues to trade well and in-line with expectations. 
As such, we have reduced EPS estimates by 25.5% in FY19 and by 13.3% in FY20. Owing to ongoing strong cash generation, we now anticipate net cash at the year end to be £4.1m. Our DCF and dividend discount model suggest a fair valuation of 60p /share, which would give a FY20F PER of 12.3x and a FY20F PEG of 0.3.  
Investing for growth
Published: Jun 06 2019

The AGM update from Xpediator provides further strong evidence of investment in management better able to support the Group’s rapid growth in revenues. The Group’s enhanced infrastructure should enable further acquisitions sourced from a strong pipeline of bolt-on opportunities. They can again be rapidly integrated and enhanced post-deal. Trading YTD has performed in-line with expectations, benefitting from strong progress within Freight Forwarding. 
In addition to hiring two senior managers during Q1, the roles of the current CEO and CFO are to change. Stephen Blyth, CEO, is to become Executive Chairman and Stuart Howard, CFO, will assume the role of CEO from September. The Group is currently searching for a new CFO and until appointment Stuart will remain as CFO. Stephen will continue to focus on the strategic direction of the Group and, aided by Head of M&A and Integration Simon Youd, he will be responsible for M&A. Prior to joining Xpediator, Stuart had wide experience of CEO and COO roles within both financial services and private equity, so he is well qualified. 
Today’s RNS confirmed that the Group is trading in-line with market expectations, benefitting from strong progress within the Freight Forwarding division. As such, we maintain our expectation of 16% y-o-y top-line growth, believing the bias towards H2 trading (responsible for c.56% of annual revenues) warrants our ‘no change’ stance.
We continue to anticipate further M&A activity this financial year, with the statement confirming a strong pipeline of bolt-on opportunities. Our expectation is that management will look to widen the geographical and product/service footprint of the Group, paid for by a combination of the existing cash resources and strong cash flow.
A high Free Cash Flow yield such as 10.9% for XPD is often an indicator of significant undervaluation in a company’s shares, in this case due to Brexit fears. Our valuation/share of 74p shows to what extent such worries appear overdone with the stock at 45p.
Free cash flow yield high
Published: Apr 29 2019

Xpediator (XPD) is an integrated freight management business. The Group has three main business areas: freight forwarding services, logistics and warehousing and transport services. Revenues are derived from the UK (39.2% of Group revenue), CEE and Baltic states (60.8%).
It has just delivered a strong outcome for FY2018. Revenues and profitability on all measures grew strongly, reflecting a combination of organic and acquisition-led growth. The Group’s net cash position strengthened further during the year. The outlook suggests another year of strong growth in FY2019, with an emphasis on cash generation. We anticipate Free Cash Flow of £6.6m in FY2019F, rising to £6.7m in FY2020F, suggesting FCF yields of above 10% in each of the forecast years.
Although the valuation has succumbed to a hefty Brexit discount, trading continued to be strong throughout FY2018, indeed accelerating during H2. The FY2018 outcome was ahead of our revised expectations on all metrics but most significantly in terms of net cash, which rose to £3.2m and more than warranted the beat in terms of declared final dividend versus to expectation. Both gross and operating margins showed y-o-y progress during H2, with the EBITA return at record levels during the period. 
Two acquisitions were made during the year, Anglia Forwarding and Import Services, both of which delivering strong growth following their integration into the group. We anticipate further M&A activity to occur in the current year, funded in part through cash flow and the group’s cash balances. 
Our valuation models suggest a fair value/share of 78p, highlighting the marked discount Xpediator finds itself relative to peers. With our estimates of FCF of £6.6m in FY2019F and £6.7m in FY2020F, this suggests an FCF yield of 10.6% in both years, again showing the scale of the 'Brexit discount' afforded the Group.
'Significant growth' confirmed
Published: Feb 19 2019

Xpediator’s pre-close trading update said that revenues and profits are both in-line with market expectations. Top-line growth was significantly ahead, rising 54% y-o-y to c.£179m (c.1% ahead of ED estimate), while profits have more than doubled to c.£7.1m. The uplift to revenues has been driven by organic growth, most notably in Freight Forwarding (Baltics and Balkans), Pall-Ex Romania, and Affinity. Plus, there were benefits from the acquisition of ISL and Anglia Forwarding in 2018, and Regional Express in late 2017.

 FY2018F proved eventful, with two acquisitions made and strong organic progress witnessed across much of the Group. The acquisition of Anglia Freight in June and ISL in July added approximately £21m of revenues, accounting for c.18% of the y-o-y increase. The wider group has benefitted from the sea and air freight capabilities, wider customer base and service offerings added

The significant improvement in revenues in the Group’s operations in the Baltic states and the Balkans, despite challenging comparatives, reflects the continued development of the customer base within the Freight Forwarding division and the rising revenues from Greece (via the Group’s Bulgarian operations).

There is a comprehensive investment programme underway during FY2019F, which is likely to boost central headcount. There will be further improvement in systems and expansion of the warehousing footprint. We think this is likely to have a small short-term impact on margins in FY2019F, but then resulting in ongoing improvement in returns as early as FY2020F onwards.

Management has suggested that the acquisition pipeline remains strong, as do the opportunities for organic growth. With approximately two-thirds of revenues generated outside of the UK, we believe that the share price has recently over-reacted to Brexit uncertainty and as a result consider it on attractive valuations currently. Xpediator’s shares are now at a FY2019F PER of just 10.9x and well below our valuation of 85p.

Life in the fast lane
Published: Oct 18 2018

Xpediator (XPD) is an integrated freight management business. The Group has three main business areas: freight forwarding services, logistics and warehousing and transport services.
Interim results to end of June demonstrated very strong progress, with revenues and operating profits rising 61% and 133% respectively, and underlying growth of 30%. Organic operating profit was 61% ahead y-o-y. Current trading remains in-line with expectations, and demand for freight management services across all core markets is high. To underline this confidence, the interim dividend was increased 21% y-o-y to 0.42p / share. 
Key drivers of top-line growth included: strong organic progress at EshopWedrop, record demand at Pall-Ex Romania, the continued move in favour of full loads within Freight Forwarding, the new warehouse in Romania, and new customer wins. 
The operating margin declined to 2.1% (H1 2017: 2.7%), which reflected a combination of the investment in support functions, the switch in favour of full-loads, new franchises within EshopWedrop, the rise in ferry crossings in Romania and the marked increase in deferred income.
Adjusted Earnings rose 34% to £1.4m and by 18% on an underlying basis. However, adjusted EPS were slightly lower (-3.6%), owing to the payment of deferred consideration for EMT (£1.1m) and the full-period effect of last year’s IPO and placing in late November.  
Even after adjusting estimates modestly lower, we believe that a share price of 90p is merited. Not only is the current share price remaining at a valuation discount to a basket of its competitors, but we also expect further accretive acquisitions that are likely to result in greater earnings momentum and subsequent increase in our fair value. 
Acquisition and placing
Published: Jul 11 2018

Xpediator (XPD) is an integrated freight management business. The Group has three main business areas: freight forwarding services, logistics and warehousing and transport services. Revenues are derived from the UK (23.5% of Group revenue), CEE and Baltic states (76.5%).
It has acquired Import Services Limited (ISL), part-funded via a placing of 10m new ordinary shares. The acquisition represents the Group’s fourth since IPO and significantly expands the Group’s capabilities at the Port of Southampton, adding a contract logistics business and in excess of 40,000 sqm of warehousing. We anticipate many operational synergies, expansion opportunities and cross-selling potential to emerge from the deal.  
We anticipate benefits to ultimately arise from combining the Group’s four facilities in Southampton, with cross-selling of freight forwarding services into ISL and the new subsidiary taking on contract warehousing work from Regional Express. In addition, there is the opportunity to develop further warehousing space (20k sqm) in the port, thereby consolidating the Group’s presence in the area. The Group now has a major presence in the two UK ports servicing non-EU trade, which should augur well post-Brexit.  
XPD has raised £7m before expenses, via a placing of 10m shares at 70p. The consideration amounts to £12m, on a cash and debt-free basis, of which £9m is payable on completion. This cost is to be funded by a cash payment of £6m and £3m in shares, with the outstanding £3m dependent upon the future results of ISL, coupled with the share price of XPD in late May 2020. The £9m initial consideration equates to a historic, fully taxed earnings multiple of 6.0x, which we regard as good value in view of the strategic importance of the deal to the Group.
We have updated our financial expectations following the acquisition of ISL and related placing. In terms of earnings per share, we have increased our expectations for FY2018F by 9.5% and by 11.5% in FY2019F. We anticipate that net cash at the FY2018F year end is now likely to amount to £3.1m, rising to £7.3m in FY2019F. 
Dividend forecasts increase, too, and our updated discount model now suggests that 97p per share is a fair value at the current time, but investors will clearly hope for further accretive acquisitions to bolster earnings’ momentum. The shares stand on undemanding multiples (two-year PEG ratio of 0.65x) relative to prospects.


'Walking the talk' - another good deal
Published: Jun 07 2018

Xpediator (XPD) is an integrated freight management business. The Group has three main business areas: freight forwarding services, logistics and warehousing and transport services. Revenues are derived from the UK (23.5% of Group revenue), CEE and Baltic states (76.5%).
XPD has announced that it has acquired Anglia Forwarding Group (‘Anglia’), its third purchase since IPO last year. We anticipate strong scope for integration benefits, some of which are likely to emerge in the very short-term, not least the move of the Group’s export freight consolidation base into Anglia’s main warehouse facility. 
In addition, there is significant scope for cross-selling between the businesses, particularly in the US, utilising the acquired business’ presence in air and sea freight, and in the Midlands. Anglia also has strong European road freight links, notably in Germany, which can be developed further. 
Anglia is a founding member of United Shipping, which is a worldwide network of independently owned and locally operated freight forwarders and customs brokers, focused predominantly on air and sea freight. This relationship potentially opens an extensive customer base globally, which we expect to be linked with Regional Express’ association with Amazon, where the Group has over 1,000 customers in the USA.
We see a positive impact of the acquisition on our forecasts and, after taking into account the recent FY2017 results and trading comments, raise our EPS estimates by 2.8% in FY2018F and by 2.3% in FY2019F. Using our previous valuation methodologies, a share price of 74.5p appears merited.  
Investor Forum, March 2018
Published: Apr 03 2018

Stephen Blyth, CEO, outlines the Group's structure, examines recent financial statements and discusses the Group's future growth strategy.
Accelerating growth ?
Published: Mar 15 2018

Xpediator (XPD) is an integrated freight management business. The Group has three main business areas: freight forwarding services, logistics and warehousing and transport services. Revenues are derived from the UK (23.5% of Group revenue), CEE and Baltic states (76.5%).
As demonstrated by the recent trading update, XPD continues to grow rapidly by acquisition and also organically (+46% year-on-year in 2017). We anticipate further strong growth during the course of our estimates, too.
Well-established position with the CEE region and the Baltic states and therefore a competitive advantage over late entrants to the region. The CEE region and Baltic states are growing much faster in GDP terms than either the UK or the remainder of the EU. This positioning, should help the Group benefit from continued re-shoring of manufacturing from the Far East. 
Eshopwedrop and Pall-Ex Romania are still in their relative infancies, growth-wise, in our opinion. We anticipate Eshopwedrop, which is now profitable, will grow strongly in both existing markets and by new / forthcoming franchise agreements in Georgia, Albania, Greece, Bulgaria, Ukraine and the USA. The strong growth of Eshopwedrop is expected to result in a cross-selling of warehousing and distribution services.
In addition, Xpediator is looking to open new office locations within the freight forwarding division in the UK. Within the transport & logistics division, management is seeking to open strategically located warehouse facilities (UK Midlands), driven by e-commerce and introduce new services in both existing and new markets. 
As management own 68% of the company, their interests are fully aligned with external shareholders and they are fully focused on value creation. On a forecast 2019 PER of 10.8x and yield of 4.1% the shares appear lowly rated despite the many growth opportunities. This is reinforced by our own valuation calculation using three different methodologies: peer group comparisons, discounted cash flow, and dividend discount model. This suggests a share value of 74p is merited, still well above current levels despite recent gains.
NB you can meet CEO and Founder Stephen Blyth at the ED Investor Forum on March 28th, please register here: 

Foreign buyers gorging on UK stocks

Document can be downloaded here: UK plc ‘going for a song’

Being a shareholder in a company that receives a juicy takeover offer is a marvellous feeling. Something that many fortunate investors have experienced over the past 3 years. Thanks to a spate of M&A bids by deep pocketed overseas buyers – partly triggered by the June 2016 Brexit result, which sent the £ tumbling and adversely affected the FTSE.

Consequently today, given this trend is unlikely to end anytime soon, we’ve highlighted 30 possible acquisition ideas in the attached research paper. Spilt equally between large and smallcap stocks – covering a broad selection of industries.

What’s more we believe most of these businesses are underpinned by strong fundamentals and substantial upside in the event of predatory interest.

According to Factset Mergerstat/BVR, the average bid premium paid for such deals between 2004-14 was 30% – with the figure trending upwards since the global financial crisis.

Happy investing. Published 27th August 2019