XPO Logistics share price shot up by 14% last week to $34.74 in the wake of a trading update that boosted its trading multiples by over 20% in less than two days of trade to end the week at $36.79, giving the logistics firm a market capitalisation of $4bn.
With net debt at $5bn, its enterprise value currently amounts to $9bn.
Given its string of acquisitions the US-based 3PL’s comparable figures carry little significance, although, notably, XPO was in the black in the second quarter for the first time in years.
At over 100x, its current equity valuation is almost prohibitive based on 2016 projected earnings – but if it continues to deliver as it did in the second quarter, its stock could even be considered as a solid bargain based on 2017 and 2018 earnings projections. If so, the second quarter of 2016 will ultimately be seen as the company’s turning point, although its stock is still some way off the $50 per share valuation that it recorded in mid-May last year.
Of course, there remain risks, which are heightened by a balance sheet where the value of goodwill and intangibles now represent 50% of total assets, so most of the assets it acquired in the past few months must deliver the kind of economic returns that shareholders expect them to generate.
Chief Executive Bradley Jacobs said that a “strong performance in the quarter was led by our North American operations for last mile and less-than-truckload, and by our European supply chain operations”.
“While market conditions were sluggish overall, e-commerce was a major tailwind – driving margin expansion in last mile, and resulting in major contract wins in contract logistics on both sides of the Atlantic. In LTL, we increased operating income by 66% from last year’s second quarter, pre-acquisition,” he added.
XPO’s core transportation unit reported quarterly gross revenues of $2.4bn, up 180.9% year-on-year, driven by acquisitions and growth in last mile and truck brokerage. Notably, its net revenue margin rose to 29.1% compared with 22.5% in 2015. Operating income was $153.2m against $23m a year ago, and quarterly adjusted EBITDA rose to $275.7m from $59.3m a year ago, spurred by its acquisitions.
Meanwhile, its logistics business generated gross revenue of $1.3bn, up 270.4% from $359.6m one year earlier, with operating income surging to $51.1m from $4.3m a year ago, while adjusted EBITDA stood at $106.9m, up from $35.8m one year earlier. Adjusted EBITDA was higher than expected, “led by volume increases from e-commerce and high tech and the strong performance of the European business overall”.
Finally, XPO upped its target for adjusted EBITDA at group level “to at least $1.27bn” from $1.25bn, while free cash flow is now expected to be at least $150m, from $100m-$150m previously, and also it reaffirmed its full-year 2018 target of about $1.7bn of EBITDA.
Source: Transport Intelligence, August 9, 2016
Author: Alessandro Pasetti
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)