CLG.L - Clipper Logistics PLC

[kab60]

I just see normal volumes on IBKR, like 80k. Not sure what to make of it either way. The outlook they gave yesterday was obviously very Bullish, so not surprised by the strong trading, but the runup before the ER surprised me a bit. Anyway, haven't sold a share. Think I'll try and hold on for the long run for once instead of flipping due to a quick rerating.

[kab60]

Interview with CEO Tony Mannix from a couple of weeks back - stock has been on a tear: https://www.proactiveinvestors.com/companies/news/928225/clipper-logistics-breaks-targeted-500m-turnover-milestone-in-full-year-results-928225.html

[jefke]

Shares briefly popped to 511p yesterday, back to 486p now.

 

"Clipper Logistics Plc is attracting interest from buyout firms as the British company benefits from the rise in online shopping, people with knowledge of the matter said.

 

Cinven is among private equity firms that have been evaluating the Leeds-based company, according to the people, who asked not to be identified because the information is private. Other potential suitors including CVC Capital Partners have also in the past looked at the firm, the people said."

 

https://finance.yahoo.com/news/u-k-logistics-firm-clipper-124953448.html

[kab60]

I'd be really annoyed if this thing gets taken over. Haven't come across many asset light, midsized secular growers with great profitability rising on the back of increased ecommerce. I think the company can become huge if they just keep grinding at it. But considering the proces last year with another PE suiter, I guess the founder is tired of being public although the valuation has come to better reflect the business recently.

[jefke]

Trading update for six months ended 31 October 2020: https://otp.tools.investis.com/clients/uk/clipper/rns/regulatory-story.aspx?cid=834&newsid=1428298

 

"Clipper has continued to see strong trading across the business in the year to date, benefitting particularly from the continued structural shift to e-commerce that has been accelerated during the ongoing Covid-19 pandemic. The Group expects to report revenue for the period of at least £300m, an increase of almost 20% against the prior year comparative period, including e-fulfilment logistics growth of over 30% and non-e-fulfilment logistics growth of approximately 10%.

 

This continuing growth trajectory has been particularly driven by strong organic growth on the majority of e-fulfilment and returns management activities, as well as new contracts brought onstream in the period including Joules, N Brown, T M Lewin, Revolution Beauty and the NHS.

 

Continued strong cash generation from operations has resulted in net debt of £27.9m at the period end, comfortably below 1x EBITDA (pre-IFRS 16), and compares to £64.4m at the same point last year and £45.1m at the end of the last financial year.

 

This good momentum and the existing pipeline of new business opportunities is expected to give the Group continuing strong performance into the second half of the financial year.

 

Clipper expects to announce its interim results in early December 2020."

 

 

[kab60]

Clipper doing its thing and Clicklink turned profitable - H1 results out

 

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

“The Group has successfully chartered the uncertainty and disruption caused by the pandemic to deliver impressive revenue

growth of 19.8% and underlying EBIT growth of 54.3%. The Group benefited directly from the structural shift and acceleration of

online retail such that our e-fulfilment and returns management division saw underlying EBIT growth of 63.3% which included a

positive contribution from our Clicklink joint venture.

 

-

 

One interesting nugget from their presentation is that they're looking at doing bolt-on acquisitions in mainland Europe & North America. NA could be huge potentially. ID Logistics already bought their way into NA and recently commented that they saw a lot of synergies from systems etc. In other news XPO Logistics just announced they'll spinoff their contract logistics business to surface value. These businesses are coveted gems, and I really hope they intend to stay public. But I can see why PE could be attractive since they could get more firepower for M&A by levering up, and they could slash their silly dividend which they just increased.

 

 

 

 

[jefke]

Trading update for Black Friday & Christmas: https://otp.tools.investis.com/clients/uk/clipper/rns/regulatory-story.aspx?cid=834&newsid=1442067

 

...experienced unprecedented levels of activity in its logistics operations in both the UK and continental Europe over the Black Friday and Christmas periods.

 

....for the months of November and December, revenues in its logistics business were 50.0% higher than in the corresponding period of the prior year, with strong growth in both e-commerce related activities and non e-fulfilment services.

 

Whilst additional revenue will not necessarily have a proportionate impact on operating profit given Clipper's contract mechanisms, this level of activity gives Management an excellent level of confidence in the year ahead.

 

Steve Parkin, Executive Chairman, said: "Our strategic positioning in supporting the online trading of retailers both in the UK and Europe places us in a strong position to continue to deliver excellent returns to our shareholders. I am immensely proud of the ability of our teams across the business to continue to support our customers' exceptional growth. The strength of both our underlying markets and our new business activity provide us with an excellent level of confidence in the year ahead."

 

 

[kab60]

No idea what market thinks of that update, but 50 revenue growth is pretty good... Anyway, what made it an easy bet before and during the start of the pandemic is their open book contracts, which means there is not a lot of operating leverage. So you give up some upside for an extremely resilent model with no volume risk. It is also difficult to figure out how much is a onetime boost from the government contract. Sold one tenth of my position but still have a 13 pct stake. There has been a lot of multiple expansion, which I don't really like, but it's a pretty great business, TAM is huge, there is optionality in Europe and possibly the states, and management is just executing. Will try and hold on, but it's difficult for me. Usually am pretty quick to flip, when market falls in love with one of my ugly ducklings.

 

 

[kab60]

Chairman Parker sold a 10 pct. stake in the Company somewhat below market. I think it's pretty clear that he wants liquidity (duh), and I guess it decreases the risk/chance of this getting sold to PE or an industrial buyer, which I like. But it's also pretty clear that he wants out - or wants a really, really big house - which I don't like. I heard from some institutional investors that they've stayed away from Clipper due to the Chairman - there has been some related party transactions, that some people don't like (me neither but I don't think it's material). I think the big opportunity here is Clipper expanding via M&A, and even though Parker still owns 15 pct., I'd clearly prefer a fully-invested Chairman.

[jefke]

Yeah, you can put in effort to find an excuse for why maybe it's not a big deal.

But hard to find an optimistic explanation.

 

PE rumors meant there was a small chance you would get taken out of your position at a premium. But with Parker selling a 10% stake at 565p (he owned about 25% iirc - yesterday's close was 588p), that's not going to happen.

 

I stumbled upon Clipper thanks to this thread. Bought in at April 2020. Mostly let the position grow, with some occasional small trims. Now I'm thinking of selling more to reduce my position size

[kab60]

It has been clear that Parker was a willing seller at the right price for a long time, otherwise they wouldn't have entained a PE firm shortly after I started the thread. Back then the price was closer to 200. Then you recently had the CVC rumours, when the stock was closer to 400 (if I recall correctly). So even though CVC might've offered a premium, I don't think you'd get close to 600.

 

I'm hoping this thing stays public, so in that regard I'm happy that Parker now has gotten a ton of cash at what looks like a fair price. But if they embark on an international expansion, which I'm really hoping they will, I'd really like him to stay onboard and not sell another chunk. It's not like they have a lot of M&A experience, and he seems to have been central in what they have done so far.

 

It's pure speculation, but he states in the press release that he intends to stay as a longtime shareholder. He almost got as much out of Clipper at close to 600 as he would've gotten less than two years ago, when they entertained a bid around 300.

 

As I mentioned, I'd really like them to pursue M&A opportunities in Europe and the US, and perhaps he'll be more willing to take risk after he's taken a large sum of money off the table. Pure speculation, but we'll see.

 

And 'grats on the fine return so far! I pay 42 pct. taxes, and this has the hallmarks of a longtime compounder, so I'm letting it ride, but it was definately an easier buy and hold at 200 than close to 600.

[kab60]

Got a new contract for mainland Europe the other day which is quiet significant - adding 30 pct. organic growth to their European operations when it is up and running and entering benelux. There's a huge amount of space for them to go after.

 

https://www.clippergroup.co.uk/new-e-commerce-operation-for-farfetch-extends-clippers-european-footprint/

 

lipper Logistics plc (“Clipper” or the “Group”), a leading provider of value-added logistics solutions, e-fulfilment and returns management services, is pleased to announce that it has entered into an agreement with Farfetch to provide pan-European e-fulfilment and returns management services from a new facility in Venray, Netherlands.

 

Farfetch is the leading global platform for the luxury fashion industry, which sells products from over 1,300 luxury boutiques and brands from around the world on its marketplace. Clipper will be providing e-fulfilment and returns management services from a new site in the Netherlands and will support all of Farfetch’s European activities from that facility.

 

The new contract will see operations commence in April 2021 and is for an initial term of five years. Clipper anticipates that it will employ 600 personnel at the site, and the facility will have a stockholding capacity of over 2 million units of high-end apparel.

[kab60]

Good news today - couple of interesting points:

 

Two Major New Contract Wins

 

Outperformance expected in FY22

 

Clipper Logistics plc ("Clipper", "the Group" or the "Company"), a leading provider of value-added logistics solutions, e-fulfilment and returns management services to the retail sector, is pleased to announce two major new contract wins with River Island and Mountain Warehouse. Together, these represent a significant step change in activity levels and will enhance earnings for the next financial year which commences on 1 May 2021.

 

...

 

Marcus Ward, Chief Operating and Financial Officer of Mountain Warehouse commented: "We have been impressed with Clipper's innovative thinking and track record. The engagement from Clipper's senior team from an early stage and Clipper's proven ability to meet our high standards, has given us with the confidence to enter into a long term partnership. We are really excited to get started."

 

Together, these two new contracts will increase revenue by over £40 million on a full-year basis, and will be immediately earnings-enhancing from go-live. As a result, the Group expects to outperform current market expectations in the year to 30 April 2022 and beyond.

 

https://www.londonstockexchange.com/news-article/CLG/two-major-new-contract-wins/14877860

[kab60]

Aaaaand another e-commerce deal, this time with JD Sports to supplement their existing ops (perhaps an opportunity to increase the scope down the line). 400.000 square feet of warehouse reserved for JD Sports initially. This compares with a total of around 10 mio. square feet of warehousing today, so that's another very significant addition.

Very impressed with their execution and ability to land new clients. I think it speaks to the service and value that they offer.

https://otp.tools.investis.com/clients/uk/clipper/rns/regulatory-story.aspx?cid=834&newsid=1468568

 

Edited April 13, 2021 by kab60

[Anglozurich]

@kab60 what is the competitive advantage here? Logistics has been a commodity service since time began. Why is this different over the long-term? What is to stop new or existing outsourced logistics/fulfillment providers waking up, bidding for tenders and lowering pricing?

Looking at this cold and i am seeing £20m in FCF for the last interim accounts and a £700m market cap. This is not cheap. I get there is new contracts but surely that is more than priced in? 

Edited April 13, 2021 by Anglozurich

[kab60]

There's no secret sauce. It's about people, processes and systems. Some might call it culture. Some might have better WMS solutions than others, but really I think it comes down to people. So in that regards it's pretty simple but it's definately not easy. Look at UK comps like Eddie Stobart (dead), Wincanton (showing a small sign of life recently) or ID Logistics in France.

I think it's a bit like freight forwarding. That's basically IT and people as well. Companies like DSV and Expeditors have created tremendous amounts of value for their owners (DSV is like plus 20 pct. CAGR since inception). They're basically just getting stuff from A to B. Simple, but they're fabolous businesses nonetheless if management is able to execute (and a lot of companies aren't - look how DSV totally turned around struggling competitors like UTI and Panalpina). DSV, by the way, are also betting heavily on contract logistics.

I think Clipper Logistics is really interesting, as they were quick to realize the opportunity in e-commerce. So they have a long and credible track record as well as possibly some regional scale advantages in the UK, where they're a very dominant player.

As for valuation, I think I said when it went from 200 to 300, that I like it better at 200. Back then I thought it was dirt cheap for a high quality but perhaps misunderstood business. Now the narrative has clearly changed, but the story has also gotten a whole lot better. They've signed four new and significant contracts in 2021 alone and went into the healthcare vertical. Not sure what a fair valuation is, because the range of outcomes is pretty big.

As long as they sign new customers and execute, I think it would be dumb for me to sell (and incur 42 pct. taxes). They're riding a very large trend, the economics are fabolous, and they're often surprising to the upside. At 22xPE (FY april 2022) and high double digit growth I don't think the valuation looks crazy considering the massive opportunity they have in Europe and possibly the US, if they're able to find a good acquisition.

Would I buy here? No, probably not. I like to invest when I feel pretty confident in revenue growth, margin and multiple expansion. I'm confident they'll keep growing for a long time, but not sure multiple expansion from here.

Edited April 13, 2021 by kab60

[Anglozurich]

thanks @kab60. Interesting. The have a track record of profitable growth for sure. I am not saying its the same business but this is more than what can be said for Ocado. Ultimately logistics, fulfillment and distribution are meant to be unprofitable for 99% of companies, hence why they outsource it. To me, Ocado is just zero-cost float funding merchants and retailers packaged as some technology power-house. i do not short companies but if i did, Ocado would be up there.

 

What do you make of the founder and ceo halving his stake recently? That is a big offload. I accept you wouldnt enter here. People de-risk i guess. The true capital allocators dont though. If he thought there was a huge opportunity and runway surely he wouldn't offload close to 50%. 

Edited April 13, 2021 by Anglozurich

[kab60]

41 minutes ago, Anglozurich said:

thanks @kab60. Interesting. The have a track record of profitable growth for sure. I am not saying its the same business but this is more than what can be said for Ocado. Ultimately logistics, fulfillment and distribution are meant to be unprofitable for 99% of companies, hence why they outsource it. To me, Ocado is just zero-cost float funding merchants and retailers packaged as some technology power-house. i do not short companies but if i did, Ocado would be up there.

 

What do you make of the founder and ceo halving his stake recently? That is a big offload. I accept you wouldnt enter here. People de-risk i guess. The true capital allocators dont though. If he thought there was a huge opportunity and runway surely he wouldn't offload close to 50%. 

Appreciate the thoughts, @Anglozurich. I think Ocado is a very different case and don't think the models really compare, but I don't have anything meaningful to add there.

Logistics, fulfillment and distribution is tough work and hardly how a lot of Clippers' customers differentiate themselves, so it makes sense to outsource to focused providers like Clipper. They have the people, processes and systems to ensure a smooth proces, and their margin is pretty low, so it can be a win-win which is part of the reason why 3PL is expected to grow at a CAGR of some 7 pct. for years to come.

Clipper often uses shared facilities, which means smaller customers (that hopefully grow large like Boohoo) use shared warehouses and thus gain scale advantages that they would otherwise not be able to capture (which means there's some margin for Clipper to capture as well).

Steve Parkin selling is both good and bad, I'd say.

Shortly after I wrote up and invested in Clipper in the fall of 2019, Clipper negotiated with a US PE fund that wanted to buy the Company for some 300p/share or 40-50 pct. premium. That was obviously a bummer.

Luckily, the deal didn't go through - most likely due to price - but by selling "just" half of his stake recently at 570p, Parkin basically cashed out as much as he would've been able to do in 2019.

Hopefully Parkin stays onboard and has now de-risked his own estate, so that they're perhaps more willing to go after a US expansion. I think one negative with Clipper is that they've only done minor M&A, which has been Parkins' table.

The story has been amount organic growth, which is CEO Tony Mannix' table.

Mannix has been onboard for a long time, has a meaningful equity stake himself and should be credited with a lot of the succes, so I think we're in pretty good hands. Not least as they recently upgraded the management around Mannix, which increases the odds of M&A.

Clipper hired Sebastien Desreumaux in October 2020 and made him Group Deputy Chief Executive Officer - or perhaps crown prince to Mannix. Desreumaux has been with Norbert-Dentressangle (bought by XPO), XPO and Hillebrand. More recently, Sebastien had a short stint as CEO of Eddie Stobart, which was a restructuring case.

Desreumaux' focus will be on M&A, so hopefully they find a good deal into the US like ID Logistics. I clearly wouldn't count on it, but it does increase the chances, and it shows they're being very deliberate and serious about international expansion. It's a model where M&A can make a ton of sense, but as I mentioned they don't have much of a history doing that in a meaningful way.

Edited April 13, 2021 by kab60

[kab60]

Recently dropped their prelim results for fiscal 2021.

 

Hardly a surprise that results were strong and ahead of consensus, but a couple of minor and interesting strategic points.

 

Following their win of a "covid19" contract with NHS in the UK last year, they've been expanding into life sciences. They just bought Wippet Ltd, which plans to launch a b2b marketplace in the UK in september. No idea what it'll amount to, but I like how they're making these opportunistic bets.

They also announched an extension of their contract with Asos in Europe. Contract is extended 3 years, and the scope is widened taking the numbers of full-time employees working on the contract from 350 to 700 people working at Clippers' site in Poznan, Poland.

 

Outlook:

The Board remains confident in Clipper's prospects for the new financial year and over the medium term and expects that the current momentum from new and existing contract wins will continue given the acceleration in the structural shift to online:

...

Underpinning the Group's ambition to become a global leader in end to end ecommerce and retail, the Company continues to explore potential M&A opportunities in both mainland Europe and North America.

 

Results:

The Group has continued to perform strongly throughout FY21 and full year EBIT (IAS17 basis) is expected to be in line with expectations of £31.6m, an underlying increase of 53% on the £20.6m achieved in FY20 (excluding the negative goodwill which arose in FY20). We expect revenue for FY21 of £698m, 39% ahead of the prior year driven by a combination of organic growth and new contract wins.

 

https://otp.tools.investis.com/clients/uk/clipper/rns/regulatory-story.aspx?cid=834&newsid=1481514

 

Still HODLing