ESL’s pre-close update confirmed the company traded in-line with expectations in the first half and continues to do so going into the second half. H117 sales grew 13% to £287m with a modest expansion in operating margins despite a challenging economic and political backdrop. Integration of the iForce acquisition continues and management highlighted the potential for cost and revenue synergies. In addition, ESL acquired 50% of Speedy Freight, a B2B express freight service provider. CEO Alex Laffey said he remains confident of meeting market expectations for the full year and once again highlighted E-commerce, Manufacturing, Industrial and Bulk as key end-markets for the group.
Written by
Eddie Stobart Logistics |
Strong H1 reinforces story |
Trading statement |
Industrial support services |
13 July 2017 |
Share price performance
Business description
Next events
Analysts
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ESL’s pre-close update confirmed the company traded in-line with expectations in the first half and continues to do so going into the second half. H117 sales grew 13% to £287m with a modest expansion in operating margins despite a challenging economic and political backdrop. Integration of the iForce acquisition continues and management highlighted the potential for cost and revenue synergies. In addition, ESL acquired 50% of Speedy Freight, a B2B express freight service provider. CEO Alex Laffey said he remains confident of meeting market expectations for the full year and once again highlighted E-commerce, Manufacturing, Industrial and Bulk as key end-markets for the group.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
11/15 |
496.5 |
21.0 |
5.4 |
0.0 |
29.3 |
N/A |
11/16 |
570.2 |
26.1 |
6.9 |
0.0 |
23.0 |
N/A |
11/17e |
648.2 |
41.4 |
10.9 |
5.5 |
14.5 |
3.5 |
11/18e |
741.9 |
50.8 |
12.3 |
6.2 |
12.9 |
3.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
High growth, expanding margins, strong H2 ahead
ESL’s sales in the six months to 31 May 2017 were up 13% to c£287m while margins expanded year-on-year partly as a result of the Q2 exit of the loss-making Britvic contract (note, the Britvic exit also reduced y-o-y revenue growth). H2 is traditionally the stronger reporting period as it includes peak seasons for retail, consumer and e-commerce. H217 is likely to be especially strong driven by high continuing growth in e-commerce plus full period contributions from both iForce and Speedy Freight. We are reassured by the trading statement and view our full year revenue growth forecast of 13.7% and operating margin expansion to 7.5% from 7.4% as consistent with management’s guidance.
M&A remains a key pillar: New deal announced
H2 will mark the first full period contribution from the iForce acquisition. The e-commerce specialist is currently being integrated with revenue and cost synergies being implemented. In the trading update, management also announced ESL has acquired a 50% stake in Speedy Freight: a provider of nationwide B2B express freight services. We look forward to receiving further financial data on this transaction at the interim statement on 31 August.
Valuation: Unchanged at 200p as story confirmed
Since we initiated on ESL on 19 June, the stock has been broadly flat despite mounting economic concern coupled with the fact that a listed peer has sold off significantly. ESL remains attractive in a sector context given its sector-leading margins, operating flexibility and high level of exposure to growth areas such as e-commerce. Until we have further information on the new investment, we see no need to update our earnings forecasts. We therefore maintain our fair value per share at 200p which offers 26% upside to the current price of 158.50p.
Exhibit 1: Financial summary
£m |
2015 |
2016 |
2017e |
2018e |
2019e |
||
Year-end 30 November |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
496.5 |
570.2 |
648.2 |
741.9 |
835.8 |
EBITDA |
|
|
44.5 |
48.2 |
55.7 |
64.4 |
73.8 |
Operating Profit (before amort. and except.) |
|
37.7 |
42.0 |
48.6 |
56.3 |
64.5 |
|
Intangible Amortisation |
(9.5) |
(9.5) |
(9.5) |
(9.5) |
(9.5) |
||
Exceptionals |
(3.1) |
(2.4) |
(18.3) |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
25.1 |
30.1 |
20.8 |
46.8 |
55.0 |
||
Net Interest |
(16.7) |
(16.0) |
(7.2) |
(5.5) |
(5.3) |
||
Profit Before Tax (norm) |
|
|
21.0 |
26.1 |
41.4 |
50.8 |
59.1 |
Profit Before Tax (FRS 3) |
|
|
8.5 |
14.1 |
13.6 |
41.3 |
49.6 |
Tax |
(1.6) |
(1.3) |
(2.3) |
(6.7) |
(8.0) |
||
Profit After Tax (norm) |
19.4 |
24.7 |
39.2 |
44.1 |
51.1 |
||
Profit After Tax (FRS 3) |
6.8 |
12.8 |
11.4 |
34.6 |
41.6 |
||
Minority interest |
0.0 |
0.0 |
0.9 |
1.1 |
3.1 |
||
Net Income (norm) |
19.4 |
24.7 |
40.1 |
45.2 |
54.2 |
||
Net Income (FRS 3) |
6.9 |
12.8 |
12.3 |
35.7 |
44.7 |
||
Average Number of Shares Outstanding (m) |
357.9 |
357.9 |
357.9 |
357.9 |
357.9 |
||
EPS (pence per share) - normalised |
|
|
5.4 |
6.9 |
10.9 |
12.3 |
14.3 |
EPS (pence per share) - normalised and fully diluted |
|
5.4 |
6.9 |
10.9 |
12.3 |
14.3 |
|
EPS (pence per share) - (IFRS) |
|
|
1.9 |
3.6 |
3.2 |
9.7 |
11.6 |
Dividend per share (pence per share) |
0.0 |
0.0 |
5.5 |
6.2 |
7.1 |
||
EBITDA Margin (%) |
9.0 |
8.4 |
8.6 |
8.7 |
8.8 |
||
Operating Margin (before GW and except.) (%) |
7.6 |
7.4 |
7.5 |
7.6 |
7.7 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
262.7 |
258.1 |
294.1 |
283.5 |
271.7 |
Intangible Assets |
225.5 |
219.3 |
209.8 |
200.3 |
190.8 |
||
Tangible Assets |
36.8 |
37.9 |
83.3 |
82.2 |
79.9 |
||
Investments |
0.4 |
0.9 |
0.9 |
0.9 |
0.9 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
120.9 |
150.3 |
178.8 |
207.4 |
237.3 |
Stocks |
1.9 |
2.4 |
2.7 |
3.1 |
3.4 |
||
Debtors |
114.9 |
133.8 |
145.6 |
166.7 |
187.8 |
||
Cash |
4.1 |
14.1 |
30.5 |
37.7 |
46.1 |
||
Current Liabilities |
|
|
(109.7) |
(120.1) |
(135.1) |
(145.0) |
(151.5) |
Creditors |
(99.6) |
(110.6) |
(125.5) |
(135.5) |
(142.0) |
||
Short term borrowings |
(5.5) |
(6.2) |
(6.2) |
(6.2) |
(6.2) |
||
Other |
(4.5) |
(3.3) |
(3.3) |
(3.3) |
(3.3) |
||
Long Term Liabilities |
|
|
(197.2) |
(198.8) |
(113.3) |
(108.3) |
(103.3) |
Long term borrowings |
(168.5) |
(173.4) |
(103.4) |
(98.4) |
(93.4) |
||
Employee benefits |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(28.7) |
(25.5) |
(10.0) |
(10.0) |
(10.0) |
||
Net Assets |
|
|
76.8 |
89.4 |
224.5 |
237.5 |
254.1 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
32.7 |
29.7 |
24.7 |
53.0 |
58.8 |
Net Interest |
(12.8) |
(10.3) |
(7.2) |
(5.5) |
(5.3) |
||
Tax |
(3.9) |
(1.7) |
(2.3) |
(6.7) |
(8.0) |
||
Capex |
(7.7) |
(8.1) |
(7.5) |
(7.0) |
(7.0) |
||
Acquisitions/disposals |
18.7 |
5.5 |
(45.0) |
0.0 |
0.0 |
||
Financing |
0.5 |
0.0 |
130.1 |
0.5 |
0.5 |
||
Dividends |
0.0 |
0.0 |
(6.5) |
(22.1) |
(25.5) |
||
Net Cash Flow |
27.6 |
15.2 |
86.4 |
12.2 |
13.4 |
||
Opening net debt/(cash) |
|
|
191.4 |
169.9 |
165.5 |
79.1 |
66.9 |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(6.1) |
(10.8) |
0.0 |
(0.0) |
(0.0) |
||
Closing net debt/(cash) |
|
|
169.9 |
165.5 |
79.1 |
66.9 |
53.5 |
Source: Edison Investment Research
|
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One of NetScientific’s portfolio companies, PDS Biotechnology (17.4% stake, 14.5% fully diluted), announced on 10 July 2017 that it has entered into a collaboration agreement with Merck to investigate the combination of the cancer vaccine PDS0101 with the PD-1 inhibitor Keytruda. PDS will be initiating a Phase IIb clinical study of the combination for the treatment of human papilloma virus-16 mediated forms of recurrent and metastatic head and neck cancer.