Xpediator: Resilience in turbulent supply chain times

Xpediator plc (LON:XPD) has reported strong H1 earnings with revenue up c.27% and adjusted PBT up c.74%; results were in line with our estimates. Revenue growth was strong across all three divisions – Freight Forwarding, Warehousing & Logistics and Transport Solutions. XPD benefited from continuing strong shipment and pallet flows in the CEE region, extra UK customs work related to Brexit, a partial turnaround in UK warehousing, and more DKV-linked fuel cards activity. Profit increased in Freight Forwarding and Transport Solutions but was held back slightly in Warehousing & Logistics partly due to start-up costs with the new hub in Southampton. On cash conversion, disruption in global supply chains and capacity shortages led to a working capital squeeze, but this should unwind through H2e and H122e.

The outlook is positive. Full year guidance is maintained and indicates nearly 20% y-o-y growth in profit, and mostly organically generated. The stock has performed strongly but is still trading at a discount to the wider European logistics sector. XPD is trading on a 2021e PE of 17.0x versus the wider group on 20.2x (a c.16% discount), and EV/EBITDA of 7.7x versus 10.5x (c.27%), with a dividend yield of 2.3% versus 2.0%. Our DCF-valuation remains 85p.

Healthy H1 trading – In late June, reflecting strong early-year trading, XPD lifted full year 2021e earnings guidance; by more than 10% at PBT to over £8.5m. H1 results today confirm continuing healthy demand for XPD’s services. Group revenue was up c.27% at £126.6m (Zeus: £125m) and adjusted PBT was up c.74% at £3.6m (Zeus: £3.5m). Adjusted EPS was 1.58p (Zeus: 1.50p) and the interim dividend increased by 11% to 0.50p (Zeus: 0.50p). Trading in Freight Forwarding in the Baltics has been particularly strong, as has the Pall-Ex franchised pallet network in Romania. The UK warehousing and distribution business has been restructured and is starting to recover. Streamlining of Group operations and better management of costs helped margins too. We think this was a solid H1 at XPD, in highly turbulent global supply chain times.

Positive outlook, Peak Season ’21 may prove exciting – Xpediator has maintained full year guidance for PBT (>£8.5m), and our analysis of H1/H2 splits suggests risks are on the upside. That said, we are watching working capital closely. For prudence, we have assumed an additional c.£4.5m absorption this year, but a net cash position (c.£3m) should still be maintained – large working capital movements are not unusual for freight forwarders and underline the benefits of a cautiously managed balance sheet. XPD’s core businesses continue to strengthen and a recent partnership with well-respected Synergy Retail Support to develop more e-fulfilment services is exciting. Management has identified selected M&A opportunities. We continue to expect XPD to outgrow its UK and European peers given its market exposures. On the sector generally, with trade disruption, Brexit, COVID and capacity shortages, Peak Season ‘21 may prove quite exciting!

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