Author Topic: CLG.L - Clipper Logistics PLC  (Read 902 times)

kab60

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CLG.L - Clipper Logistics PLC
« on: October 17, 2019, 03:50:30 AM »
Came across this Company recently. I think it's a very interesting (and cheap) way to play the ecommerce trend without the risk of betting on just one horse, and the economics are quiet terrific (+30 pct. ROCE, so despite high growth a healthy dividend). I need to do more work but already took a position last week since all that's going on around brexit can make British stocks quiet volatile. I'd love to hear if anyone else has taken a look.

Anyway, Clipper Logistics is a well-run, high ROIC business benefiting from secular growth (ecommerce), massive TAM and a solid track record with the founder - owning 25 pct. of the Company - as Chairman overseeing capital allocation.

Company description: Founded by chairman Steve Parkin in 1992, Clipper Logistics is a specialist logistics player that handles logistics, warehousing and returns management for traditional retailers as well as some of the biggest ecommerce players in the UK like Asos, Zara and PrettyLittleThing (boohoo) as well as helping Amazon - among others - in continental Europe.

While the traditional retail customer-segment is more mature, profits in the e-fulfillment division has grown at a plus +30 pct. CAGR since 2011 (mostly organically). Clipper Logistics also has a small commercial vehicle business which historically has been a decent cash cow but is immaterial to the thesis.

Thesis point 1:
Trading at 6,6 FY2020 ev/ebitda estimates or 11 P/E due to brexit fears, accounting technicalities and an unprofitable JV which should be at an inflection point, Clipper Logistics is a way of playing the ecommerce boom. Instead of betting on the gold diggers (ecommerce/retail), Clipper Logistics is a bet on the shovel salesman (logistics - warehousing, returns management (branded Boomerang), technical services (refurbishing returns from Amazon among others).

Thesis point 2: Clipper Logistics has an attractive business model with high returns on invested capital (leased warehouses), high cash conversion, little working capital needs and low risk growth since most of the revenue stems from open book contracts (67% of UK
Logistics customers), which means the costs incurred by Clipper Logistics are charged to the customer plus a management fee.

Thesis point 3: Profits in fiscal year 2019 (ended April) were disappointing due to various issues that are non-material to the long term thesis or one-time in nature:

1) Re-classification of a customer contract has shifted profits of £3m from fiscal year 2019 to 2020 (one-time)
2) The commercial vehicle segment declined - profit down to £1,1m vs. 2,5m prior year
3) Lower gains from real estate sales and services than previous year (£3.1m in 2019 versus £6,4m in 2018)
4) Clicklink, a JV since 2015 with retailer John Lewis for Click and Collect services (3rd parties as Superdry and Urban Outfitters onboard and expanding) has been slow to get to profitability but a price increase in H2 2019 and increased activity should help it get it to profitability in 2020 (grew revenue approx 15 pct. in 2019)

Bottom line: Earnings were flat in fiscal 2019, while analysts peg them to grow EPS 43 pct. in fiscal 2020 according to Sentieo.

Thesis point 4: Clipper Logistics is pretty much valued as a no-growth Company, but the somewhat funny mix of assets obscures the high growth jewel in e-fullfilment. Or one could call it good co/bad co (though retail actually does okay - while e-fulfilment grew revenues 47 pct. in fiscal 19, non e-fulfilment logistics grew 4,4 pct.)

Thesis point 5: Optionality from European expansion. Clipper Logistics generates most of its business in the UK but has a growing presence in Poland and Germany to service continental Europa. That gives the Company a lot of optionalty. If they execute the growth runway is massive (at only 230m GBP marketcap itís a midcap with 6.600 employees) due to the growth of etailers and omnichannel which increases the complexity of logistics operations and espescially returns management.

Risks:
Macroeconomic outlook, Brexit as well as high street retail. While this is mostly a play on e-fullfillment, the mature part of Clipper has high exposure to high street retail and thus thereís a risk of declining volumes or customers getting into financial trouble (though risk of bad debt should be low since Clipper has a right of lien over its customersí inventory). If customers opt to move outside of the UK due to Brexit, Clipper already offers a solution.

Contract renewals/execution. With mid-single digit EBIT-margins and high organic growth, Clipper doesnít seem to charge excessively for its services, but thereís a risk that customers decide to inhouse logistics or find another provider. 3PL-players like DSV Panalpina has a logistics business as well, and itís a high-growth market which is bound to attract competition, so itíll come down to execution (long relationships with players like Asda, ASOS, John Lewis, Morrisons and Superdry as well as winning new ones gives some comfort they wonít drop the ball). They losts two customers in fiscal 2019 (Whistles and Go Outdoors), while they notified a big customer of their intent to terminate a large contract (which they say should immediately improve profitability in 2020). Since fiscal year end 2019 they have commenced activities with four other customers.
« Last Edit: October 17, 2019, 03:59:22 AM by kab60 »


kab60

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Re: CLG.L - Clipper Logistics PLC
« Reply #1 on: November 20, 2019, 12:39:33 AM »
Stock up 20 pct. due to preliminary approach from PE firm Sun European Partners. Some 35 pct. up since writeup. Fantastic IRR, but I think it would suck if they sold. Think it's my best idea for a long term growth story. Unfortunately the founder/Chairman, who owns 25 pct., seems to be onboard.

https://news.sky.com/story/clipper-logistics-founder-fashions-300m-takeover-bid-11865145
https://otp.tools.investis.com/clients/uk/clipper/rns/regulatory-story.aspx?cid=834&newsid=1346039
« Last Edit: November 20, 2019, 12:42:50 AM by kab60 »

kab60

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Re: CLG.L - Clipper Logistics PLC
« Reply #2 on: December 05, 2019, 01:35:04 AM »
Michael Burry/Scion flagged a position. It's a 6 pct position for me after the runup but I do consider adding. At 300 it is still cheap for such a high quality business with a large TAM, and if it gets taken private there might be a bit more upside. Berenberg has a 320 target, and it traded at 450 before. Can't say I'm a expert in merger/risk arbitrage, but it seems interesting in that I for once really like the business and wouldn't mind holding at 300.
« Last Edit: December 05, 2019, 01:56:10 AM by kab60 »

Spekulatius

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Re: CLG.L - Clipper Logistics PLC
« Reply #3 on: December 05, 2019, 03:54:26 AM »
Thanks for the update. I put it on my watchlist when you posted, because it looked interesting, but never got around to look into this closer before it ran away.
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kab60

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Re: CLG.L - Clipper Logistics PLC
« Reply #4 on: December 05, 2019, 04:19:58 AM »
They also released prelim results today. Underlying EBIT up 26 pct.

https://otp.tools.investis.com/clients/uk/clipper/rns/regulatory-story.aspx?cid=834&newsid=1350394

Commenting on the results, Steve Parkin, Executive Chairman of Clipper, said:

"The Group continues to see impressive revenue and EBIT performance in the first six months of the year, largely driven by the particularly strong growth in e-fulfilment and returns management and an improving contribution from our Clicklink Joint Venture."

"A number of new operations have commenced in the period with major customers including Hope & Ivy, Simba Sleep, SLG, Shop Direct and M&S. Our business continues to perform well in Europe, with revenue growth in Poland of 111.6% and Germany of 33.4%. This is supported by a solid new business pipeline in the UK where we continue to offer value-add e-commerce and logistics services, including automation programmes, as we trial robotic technologies with a number of customers."

"As retailers increasingly collaborate to minimise their route-to-market costs, Clipper, given its presence and infrastructure in retail logistics, is ideally placed to facilitate consolidation on behalf of retailers."

"Trading has continued to be positive post-period end, with the key Black Friday trading weekend seeing record daily volumes in certain sites, and we expect full year earnings to be broadly in line with the board's expectations. Notwithstanding the difficulties facing the UK high street and the uncertainties of the UK political environment in the current year, Clipper remains positive about the longer-term outlook and believe the Group is well positioned to achieve further growth in both the UK and internationally."

CookingByTheNumbers

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Re: CLG.L - Clipper Logistics PLC
« Reply #5 on: December 05, 2019, 07:54:01 PM »
Michael Burry/Scion flagged a position. It's a 6 pct position for me after the runup but I do consider adding. At 300 it is still cheap for such a high quality business with a large TAM, and if it gets taken private there might be a bit more upside. Berenberg has a 320 target, and it traded at 450 before. Can't say I'm a expert in merger/risk arbitrage, but it seems interesting in that I for once really like the business and wouldn't mind holding at 300.

Just curious, where are seeing that Burry flagged position?