Xpediator – asset light and operating on low fixed costs, this is a classic growth stock
Whatever happens with Brexit this group will be a beneficiary. That in itself stirs my interest.
But what I do like about Xpediator (LON:XPD) is that despite its span of operation it has great control of its costs because it only acts as a broker.
The company is a fast-growing international provider of freight management services, exploiting the global growth in demand for transportation services driven by e-commerce and economic growth.
It offers road, sea and air freight services throughout Europe, as well as globally, together with logistics and warehousing in the UK and in Romania.
Autonomously it operates in four main business areas: freight forwarding; logistics and warehousing; transport support services; and e-commerce.
As a group Xpediator employs over 940 people, with its main office centred in Braintree, Essex, with local offices in Bulgaria, Lithuania, Estonia, Macedonia, Montenegro, Moldova, Romania and Serbia (just like a list from the Eurovision song contest).
It operates across a total of 38 sites, with its speciality being Central and Eastern Europe. Its freight management and transportation services are in greater demand than ever before.
Its experienced management teams enable the group to take advantage of the current market trends across the UK, Europe and the fast-growing CEE markets.
However, it does not own a fleet of trucks, instead it is an asset light business with low fixed overheads, delivering to its customers requirements by sourcing capacity across the haulier market, it deals with over 3,000 hauliers.
The company acts as a broker by using its scale to achieve competitive prices to transport its customers goods, whilst earning a commission on each journey that the company organises.
This low risk approach has been the basis of Xpediator’s business since it was formed in 1988.
Across the UK and Europe the company has over 90,000 sqm of warehousing used by its customers to provide storage and logistics services.
In Romania, where it operates a palletised goods service, the company also provides fuel and toll cards to 12,700 truck drivers, as well as roadside assistance and ferry crossing bookings.
The freight management sector is a fragmented marketplace and supply chain. It has a mass of smaller operators, which has aided the group in its highly selective acquisition strategy.
Over the last year or so it has successfully completed five acquisitions, boosting both revenue and profitability of the group. Whilst cross-selling across the group has provided it with organic growth opportunities.
With over 14,000 highly diversified customers, including names like Amazon, Avon, Coca-Cola, Primark, Dacia, Continental Tyres, Pirelli, Honeywell, Philip Morris, Karcher just as an example. The group states that not one of them generate more than 2% of the group turnover.
Despite the outcome of Brexit being an unknown factor its customers will still need to transport goods in and out of the UK. They will need the logistics experience that Xpediator offers its clients.
The company has put together an internal Brexit team with hard border experience so that it can be prepared for both WTO and increased physical checking processes at borders. It has established presences in major ports and airports gaining the important Authorised Economic Operator status and various customs licences.
Last year the group reported £179.17m of revenue and a more than doubled pre-tax profit of £5.62m, with earnings per share of 4.8p and a 1.26p dividend.
Brokers estimates for the current year suggest £204.57m of sales and £8.15m of profits, giving earnings of 4.80p (reflecting the acquisitions) and a 1.30p of dividend per share.
Next year could see revenue up at nearly £218m and pre-tax profits of £9.25m, worth 5.30p in earnings and a dividend of 1.45p per share.
With 136m shares in issue the group is currently valued at around £67m.
The founder and CEO, Stephen Blyth, is the biggest holder, with 25.5% of the equity, whilst Shaun Godfrey, who is the COO of the Freight Forwarding division, holds 16.1%. Sandu Grigore, who is on the property side, holds 11.15%, Richard Lee Myson, the former finance director holds 2.94%, and so too does Danor Ionescu, who is COO of Logistics, with another 2.94%. That means that close to 58% of the equity is in tight management hands.
Professional investors include Cavendish Asset Management (4.94%), Rathbone Investment Management (3.61%), BMO Asset Managers (3.58%) and City Financial Investment (2.29%).
So in conclusion, this is a fast-expanding business with its CEE experience as a key differentiator. It is enjoying high demand for its services and Brexit does not bother its operations, if anything it makes them even more attractive.
It is asset light, with low fixed costs and no customer concentration risk. And it is confident that it has the ability to source capacity to manage its forecast increase in demand.
And at just 50p the shares are trading on a mere 10 times earnings and yielding 3.2%. These shares are cheap and I now set a Target Price of 90p within the coming year or so.