It’s been a rough couple of years for the Logistics Development (LSE:LDG) share price. Formerly known as Eddie Stobart, this logistics business saw its stock price slashed by 90% since its original listing in 2017. But over the past 12 months, it’s up nearly 80%.
Why did the LDG share price originally crash? Is the recent growth a sign of a turnaround? And should I be adding the business to my portfolio?
Falling share price
Over the years, Logistics Development had signed various news contracts with companies like Homebase and Britvic and made several key acquisitions to expand its portfolio of service offerings. But despite this, the firm struggled to generate profits and racked up a lot of debt in the process.
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Naturally, a continuous stream of disappointing results led to a steadily falling share price. And by mid-2019, it had lost around half its value in two years. But this decline quickly accelerated. In the following August, CEO Alex Laffey stepped down with immediate effect. Why? Because an internal accounting review revealed that operating profits were “significantly lower than anticipated”. This led to the delayed publication of its half-year results and consequently caused the shares to be suspended from trading.
By the time trading was reinstated in November 2019, the LDG share price had been slashed again from 64p to 5.4p. But just as the company looked like it was going insolvent, it received a £55m rescue package from private equity group, DBAY Advisors.
Time for a comeback?
With new cash injected into the business, Eddie Stobart began restructuring itself into an investment company and renamed itself Logistics Development. Using its industry knowledge, combined with investing expertise provided by DBAY Advisors, the company’s new business model is to seek out investment opportunities within the logistics, transport, warehousing, and e-fulfilment sectors.
This new strategy was approved by shareholders in December 2020. And so its effects were not captured in the most recent published results. But the preliminary report did show a good base from which to start.
The net debt of the company has been cut by £77.2m to £144.5m. By comparison, based on the current LDG share price, the firm’s market capitalisation stands at around £90m. So the business is still highly leveraged. But it’s a significant improvement compared to the year before. Meanwhile, underlying profits increased from £4.2m to £47.8m. Impairments ultimately resulted in an overall loss for the year. But as these are one-time expenses, I give it the benefit of the doubt.
The bottom line
Overall, I think the new strategy sounds like it has potential, especially since the rising popularity of ecommerce has led to a considerable boost in demand for the sectors in which Logistics Developments intends to invest. And if successful, then I believe the LDG share price can make an exciting comeback over the long term.
However, at this stage, there are simply too many unknowns. For now, I’m keeping this stock on my watch list until I see how effective the new strategy actually is.
