CLG.L - Clipper Logistics PLC

[kab60]

So this is mostly me talking to myself and keeping notes, but Company sent this out the other day - basically confirms that they aren't very affected by coronavirus so far due to the above mentioned open book contracts. I don't know many other business with such a large TAM, such a high growth rate, just a high ROIC and such a low valuation (and apparently rejecting a PE suitor two months ago for twice the price of where it trades today). With a large founder at the helm. They've gotten some criticism recently for still operating their warehouses when something like online apparel sales isn't necessarily urgent. Understand the criticism but it's probably near impossible to refuse to handle their customers' logistics without a government order in hand:

The Board is continuing to monitor the overall impact of COVID-19 on the business, both in terms of its operations and the effect on its customers. The Company will update the market in due course when the position becomes clearer. However, it should be noted that the Group’s contract mechanisms in the logistics sector both in the UK and Europe provide a good degree of profit protection and cash generation in the event of volume reductions, and this has resulted in only a modest impact on the Company’s performance to date.

The Company is expecting net debt at its 30 April 2020 year end to be c.£42.0 million, slightly more than 1x EBITDA (pre-IFRS16 adjustments). At that level, it would have headroom of over £30.0 million in its banking facilities, and very substantial headroom against its net debt covenant of 2.5x EBITDA.

In addition, Clipper is owed £29.0 million from its open book customers in respect of capital expenditure funded on their behalf and due to be repaid over the balance of their contracts. Such asset funding only takes place where a customer’s credit status warrants this. The Company’s ‘look through’ year-end net debt, adjusting for these sums, is therefore expected to be c. £13.0 million.

Clipper will continue to provide support through utilising and mobilising its Europe-wide sites, personnel and fleet thereby alleviating significant supply chain pressure which benefits retailers and consumers alike.

[grym02]

Interesting idea. Two questions:

- How do CLG's economics (margins, ROICs) compare on e-fulfillment vs. traditional retail logistics?
- What's your estimate of levered and unlevered multiples today? So both P/E or FCF multiple along with EV/EBIT?

[kab60]

Interesting idea. Two questions:

- How do CLG's economics (margins, ROICs) compare on e-fulfillment vs. traditional retail logistics?
- What's your estimate of levered and unlevered multiples today? So both P/E or FCF multiple along with EV/EBIT?

Margins are higher on traditionel retail, but margins doesn't matter much here. Their open books contracts means it is basically a cost plus model. So little operating  leverage, but that also means they have little volume risk - pretty great right now. Not sure they disclose invested capital per segment, but not sure it matters much, it is very asset light. They lease their warehouses, no spec, so only when they have a firm contract. So 24m equity end of October, probably will do 40 ebitda per guidance. Versus marketcap of 150m plus some 40m in debt (but most is from contractual capex that customers have to pay back). I'm a bit tipsy, so this all back of envelope.

[gym97]

I found out that Burry owned this and googled his name and found this threat.

Anyways, I own clipper too. Fantastic business. Doesn't take capital, e-commerce side of business can grow double digits for a long time. Brick and mortar side probably still MSD growth given more retailers are outsourcing logistics to specialists like Clipper. Even in this current environment, would expect brick-and-mortar side to see some declines (my ballpark is maybe 30% this year) but based on the announcements over the last few weeks, it sounds like they've been able to offset this by managing more of thier large existing customer logistics, including grocery logistics for M&S and John Lewis (Waitrose grocery I think) I believe. Brick and Mortar is about 40% of EBIT if I recall correctly.

You should try looking at ID Logistics. They are closest comparable based in France at 30x P/E which I think reflects the high quality nature of the company! Otherwise, their main competitors would include DHL and XPO. The third-party logistics (3PL) business is probably the crown jewel of XPO's business.

[kab60]

I found out that Burry owned this and googled his name and found this threat.

Anyways, I own clipper too. Fantastic business. Doesn't take capital, e-commerce side of business can grow double digits for a long time. Brick and mortar side probably still MSD growth given more retailers are outsourcing logistics to specialists like Clipper. Even in this current environment, would expect brick-and-mortar side to see some declines (my ballpark is maybe 30% this year) but based on the announcements over the last few weeks, it sounds like they've been able to offset this by managing more of thier large existing customer logistics, including grocery logistics for M&S and John Lewis (Waitrose grocery I think) I believe. Brick and Mortar is about 40% of EBIT if I recall correctly.

You should try looking at ID Logistics. They are closest comparable based in France at 30x P/E which I think reflects the high quality nature of the company! Otherwise, their main competitors would include DHL and XPO. The third-party logistics (3PL) business is probably the crown jewel of XPO's business.

Hi gym, thanks for the input and suggestion re ID Logistics. Didn't know about that one. Nice to finally meet a fellow shareholder!

I agree on everything you wrote - I think this is a fabolous little jewel which was underscored by the PE interest in December for anyone in doubt (I luckily made a good bit of money by trading the buyout news). I think it's probably my best GARP idea, which is also why I was a bit sad to see the Company entertaining a bid, but whatever, didn't go through. Lots of competitors - like XPO, DHL and DSV - I'm sure would love to pick them up at these levels.

They won the NHS contract to supply the UK healthcare system with PPE during Covid19 and have basically proven what a resilent model they have. The economics, as you point out, are fantastic, and the open books contracts which I liked before Covid19 are obviously a real star during these times. I'm surprised there's so little interest on here, but anecdotally that's usually a good thing.

[kab60]

European expansion: https://wbj.pl/p3-poznan-tailored-to-e-commerce/post/127089

[kab60]

Smashing Company update. Growth accelerating during Covid19. I really find the lack of interest here interesting - to say the least. It's a royalty on e-commerce with fantastic economics, unlike a lot of other plays disruption risk seems very limited. Some highlights from update here:

Following the initial period of disruption, Clipper has experienced strong levels of activity from both new and existing clients. In particular,  the Company has provided support to online retailers with high e-fulfilment volumes, as some online retailers experienced extremely high levels of demand, regularly outstripping that seen over the Black Friday period last year. We are witnessing volume increases of over 100% on a like-for-like basis with some customers.

In total, the new activities brought on since lockdown, coupled with new contracts coming on stream in Q1 FY21, will add a further 1.5 million square feet of space to Clipper's pre-existing 10 million sq. ft. infrastructure.  The Group has also seen a significant increase in its tender pipeline; the annualised revenue of the probability-weighted pipeline stood at over £50 million as at 18 May 2020, a significant increase on the same period last year.

Meanwhile, Clipper's European business continues to grow rapidly, driven by a growing presence in e-fulfilment and returns management. Revenue in Europe grew by 41.3% in FY19 and by a further 33.7% in FY20.

The Company-compiled consensus for EBITA for FY21 is £25.8m. Whilst COVID-19 still presents some risk, the Board believes that EBITA will be comfortably ahead of these expectations.

More here:

https://www.londonstockexchange.com/news-article/CLG/year-end-trading-update-the-effect-of-covid-19/14561118

As I mentioned before, Company screens badly due to leases.

[paperwerks]

The stock price was 305 Pence yesterday.

Do you think it was a better buy two months ago at 135 Pence?

Or, does it not matter, and we should just pay up?

[jefke]

Smashing Company update. Growth accelerating during Covid19. I really find the lack of interest here interesting - to say the least. It's a royalty on e-commerce with fantastic economics, unlike a lot of other plays disruption risk seems very limited.

I appreciate all the updates

Was just reading that company update. I'm kind of new to the game, but I can't recall the last time I read such a bullish press release.

[kab60]

The stock price was 305 Pence yesterday.

Do you think it was a better buy two months ago at 135 Pence?

Or, does it not matter, and we should just pay up?

It was a much better buy two months ago, since anyone with insight into their business could figure out they'd do okay. But most stuff was a better buy two months ago, so I'd try and pack that feeling of missing the bus away and asses it at the current level, which I think is a fair price for a great business. Say they do 30m ebita, net debt at 1x, and it trades around 11xebita with what seems like a long runway of double digit growth at a high ROIC. Plus, ClickLink inflecting so a losing segment starts adding to profitability.