After an inauspicious start, Mark Watson-Mitchell is beginning to feel more positive about his recent profile of Xpediator.
Within days of me profiling this group at 50p its shares fell to 42p, three weeks later they were 53p and just over one month later they then fell off the cliff to 29.75p. Subsequently they eased even more, falling to 12.5p at the end of March this year.
So having spent time on researching and writing about Xpediator (LON:XPD), it was just like spitting in the wind. This really has done me no favours considering its price performance to date.
However, at the start of this month its shares started to rise from the boring trading pattern of 20p to 24p that had persisted through the summer. Hovering 24p to 26p for a couple of weeks they then spurted into action on Monday of this week, following the group’s latest trading update, closing at 30p on nearly four times the average daily dealing volume and looking upwards bound.
Joined AIM in 2017
Based in Braintree, Essex, this group, was set up in 1988 and went onto the AIM market just three years ago.
Today it employs over 1,000 people and it is a leading provider of freight management services across the UK and Central and Eastern Europe.
Xpediator has an international network of offices with 38 sites across nine CEE countries, through which it provides road, sea and air freight services, together with logistics and warehousing in the UK and Romania.
The group offers integrated freight management within the supply chain logistics and fulfilment sector, through its three main areas: freight forwarding, logistics & warehousing and transport services.
Transportation of goods is the primary business
The primary business is managing the transportation of goods through its freight forwarding division. It is an asset-light operation, therefore without the fixed fleet costs it has been able to match its costs to its volumes, thereby maintaining cost flexibility throughout the pandemic, especially when volumes dropped sharply at the start of the COVID-19 outbreak.
Demand for freight forwarding services has since then strengthened while also seeing added income from new markets. The group suggests in its trading update that 2020 revenues for this side could exceed 2019 by some £10.0m (2019: £159.6m).
Its transport solutions side gets fuelled up
On its transport solutions side, where it trades principally under the Affinity brand, it provides fuel and toll cards to European hauliers.
The virus led to reduced traffic volumes and significantly lowered fuel prices. That brought about lower income levels in H1. Monthly revenues have since recovered well from 40% down in April to just 6.5% below in October. Revenues for the solutions year are now expected to be around £5.0m (£6.2m).
Warehousing and logistics recovering well
The logistics and warehousing division owns and manages warehousing in the UK and Romania. It also runs the leading pallet distribution network. Pall-Ex, in Romania. Both warehousing in Romania and Pall-Ex have recovered well from the impact from the pandemic.
Due to lower activity amongst retailing clients, income from the group’s UK warehousing was reduced.
In the second half trading has been much stronger. Even so, revenues for this division are expected to be flat at around £48m.
Recovery to previous levels – if not higher
Overall, it appears that trading for the current year to the end of next month is looking a lot better.
Since the half year the group has continued to recover to historic levels and it is now expecting to report adjusted pre-tax profits of at least £6.0m for the year, an 18% increase over the prior year (2019: £5.15m).
Next year’s outlook looks strong, based on maintaining current trading patterns, cost reductions, together with its healthy balance sheet.
If, because of Brexit, there is a change in border controls, it will have an increased workload which should translate into even higher revenues.
The group’s CEO is very positive about next year
In Monday’s trading update the group’s CEO, Robert Ross, stated that, “For Xpediator, 2020 has demonstrated the strength of being a diversified business.
“While the COVID-19 pandemic has resulted in less traffic and therefore reduced use of our fuel cards, demand has increased for our freight forwarding and warehouse and logistics services, and we have also delivered on cost saving initiatives.
“The net result is expected to deliver an 18% increase in annual adjusted profit before tax and annual cost savings of £0.5m. This, combined with our fuel card business returning to normal, means we are moving forward into 2021 with confidence.”
The group’s brokers see the shares as undervalued
For the year to end December 2021 Cenkos Securities, the group’s broker, sees revenues rising to £249.4m and adjusted pre-tax profits rising to £6.6m, worth 4p per share in earnings.
So that could mean that we will, at long last, see the £42.5m capitalised group’s shares rising back up to trade around the 50p level again.
It will take time, but I really do feel a lot more positive now about the group’s prospects. My price objective, though, is still a very long way off.
(Profile 28.05.19 @ 50p set a Target Price of 90p)