Traditionally, companies specialising in freight and logistics services have made for rather dull investments. With the seemingly unstoppable rise of online shopping however, I think this could be set to change.
Let’s look at two small-caps operating in this industry, Clipper Logistics (LSE: CLG) and Wincanton (LSE: WIN). Which one looks like delivering the goods for investors?
Excellent interims
I’ve been bullish on Clipper Logistics for a while now and today’s interim figures only serve to increase my confidence in the company.
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Revenue and profit growth have been strong across the group over the last six months with the former rising by 16.5% to £164.9m and the latter by 25.5% to £6.9m (before tax). Earnings per share increased 23.3% and cash generated from operations rocketed 67% to £12.3m from £7.4m in the same period last year.
In terms of operational highlights, Clipper has extended its click-and-collect network and, having recently signed a 10-year agreement, launched a returns a pre-retail processing facility for John Lewis in Northampton. The company expects that this will “significantly enhance profits in future financial periods.“
In addition to securing new contracts with M&S and Halfords, Clipper has also made progress with its operations in Germany — the full benefits of which should be felt in the next financial year. With Brexit on the horizon, some geographical diversification is never a bad thing.
So, an excellent set of results from the Leeds-based business, more than justifying the 5% rise in its shares this morning.
On a forecast price-to-earnings (P/E) ratio of 28 though, shares in Clipper are without doubt highly valued. While a 20% hike in its interim payout will be welcomed, the forecast 2% yield attached to the company’s shares is also relatively small. Nevertheless, figures like those announced today combined with the rapid migration of consumers online suggest that this is very much a share to buy and hold for the long term. And with a market cap of just £362m, there’s lots of room left for Clipper to grow.
Back on track
After a sticky few years (at least financially), last month’s half-year results from Chippenham-based Wincanton suggest that it’s continuing to turn things around. The creation of an e-commerce national fulfilment centre for Majestic Wine along with contract renewals from the Co-Op and Sainsbury’s were undeniably positive developments. Although the ending of some contracts saw revenue dip by 1.7%, underlying operating profits rose by 19.2% to £26.1m which, in turn, helped earnings per share jump by 35.9%.
Given its previous financial difficulties however, the continuing reduction of the company’s net debt by another £7.3m in this reporting period was, for me, the most important figure. Net debt now stands at £32m, almost £140m less than in 2011. Although cash flow remains an issue, this momentum is encouraging.
Shares in Wincanton currently trade on a forecast P/E of just under nine. That seems incredibly cheap for a company that’s managed to deliver double-digit earnings per share growth in five of the last six years. Now that dividends have resumed, there’s even a juicy (and easily covered) forecast 4% yield for 2017. Whether this makes Wincanton a better opportunity depends — I think — on the strategy of the prospective investor.
For income and value, Wincanton looks a clear winner. For growth-focused investors, its enviable position with key retailers makes Clipper the more attractive option.
