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 it’s 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 there’s 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 customers’ 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 doesn’t seem to charge excessively for its services, but there’s a risk that customers decide to inhouse logistics or find another provider. 3PL-players like DSV Panalpina has a logistics business as well, and it’s a high-growth market which is bound to attract competition, so it’ll 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 won’t 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.
