Acquisition and placing
Xpediator (XPD) is an integrated freight management business. The Group has three main business areas: freight forwarding services, logistics and warehousing and transport services. Revenues are derived from the UK (23.5% of Group revenue), CEE and Baltic states (76.5%).It has acquired Import Services Limited (ISL), part-funded via a placing of 10m new ordinary shares. The acquisition represents the Group’s fourth since IPO and significantly expands the Group’s capabilities at the Port of Southampton, adding a contract logistics business and in excess of 40,000 sqm of warehousing. We anticipate many operational synergies, expansion opportunities and cross-selling potential to emerge from the deal.
We anticipate benefits to ultimately arise from combining the Group’s four facilities in Southampton, with cross-selling of freight forwarding services into ISL and the new subsidiary taking on contract warehousing work from Regional Express. In addition, there is the opportunity to develop further warehousing space (20k sqm) in the port, thereby consolidating the Group’s presence in the area. The Group now has a major presence in the two UK ports servicing non-EU trade, which should augur well post-Brexit.
XPD has raised £7m before expenses, via a placing of 10m shares at 70p. The consideration amounts to £12m, on a cash and debt-free basis, of which £9m is payable on completion. This cost is to be funded by a cash payment of £6m and £3m in shares, with the outstanding £3m dependent upon the future results of ISL, coupled with the share price of XPD in late May 2020. The £9m initial consideration equates to a historic, fully taxed earnings multiple of 6.0x, which we regard as good value in view of the strategic importance of the deal to the Group.
We have updated our financial expectations following the acquisition of ISL and related placing. In terms of earnings per share, we have increased our expectations for FY2018F by 9.5% and by 11.5% in FY2019F. We anticipate that net cash at the FY2018F year end is now likely to amount to £3.1m, rising to £7.3m in FY2019F.
Dividend forecasts increase, too, and our updated discount model now suggests that 97p per share is a fair value at the current time, but investors will clearly hope for further accretive acquisitions to bolster earnings’ momentum. The shares stand on undemanding multiples (two-year PEG ratio of 0.65x) relative to prospects.
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