Free cashflow yield high
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 (39.2% of Group revenue), CEE and Baltic states (60.8%).It has just delivered a strong outcome for FY2018. Revenues and profitability on all measures grew strongly, reflecting a combination of organic and acquisition-led growth. The Group’s net cash position strengthened further during the year. The outlook suggests another year of strong growth in FY2019, with an emphasis on cash generation. We anticipate Free Cash Flow of £6.6m in FY2019F, rising to £6.7m in FY2020F, suggesting FCF yields of above 10% in each of the forecast years.
Although the valuation has succumbed to a hefty Brexit discount, trading continued to be strong throughout FY2018, indeed accelerating during H2. The FY2018 outcome was ahead of our revised expectations on all metrics but most significantly in terms of net cash, which rose to £3.2m and more than warranted the beat in terms of declared final dividend versus to expectation. Both gross and operating margins showed y-o-y progress during H2, with the EBITA return at record levels during the period.
Two acquisitions were made during the year, Anglia Forwarding and Import Services, both of which delivering strong growth following their integration into the group. We anticipate further M&A activity to occur in the current year, funded in part through cash flow and the group’s cash balances.
Our valuation models suggest a fair value/share of 78p, highlighting the marked discount Xpediator finds itself relative to peers. With our estimates of FCF of £6.6m in FY2019F and £6.7m in FY2020F, this suggests an FCF yield of 10.6% in both years, again showing the scale of the 'Brexit discount' afforded the Group.
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