For Eddie Stobart Logistics (AIM:ESL), the iconic British haulier, 2019 was a difficult year. Heavy losses, mounting debts, two profit warnings, an accounting failure, a suspension of its shares and a new CEO were all reflected in a 90% decline of its share price in a year, in what looked like the sad demise of an investor favourite.
The share price opened trading on 9/11/20 at 8.10p, off its 52-week low of 4.00p. Three years ago in November 2017, shares were trading at around 159p. Part of the decline can be attributed to the UK stock market, as investors have shied away from UK-focused stocks since the Brexit vote of June 2016, resulting in a terrible stock market performance.
However, this year Eddie Stobart Logistics has seen its underlying earnings before interest and tax jump to £10.6m, compared to a loss of £11.6m the previous year, with first half revenues marginally down 1.1% at £416.5m.
The Eddie Stobart rescue plan
The improved performance was attributed to a rescue plan launched in December 2019, after the company came close to collapse. Isle of Man private equity firm DBay Advisors, which used to own the company before floating it on the stock market in May 2017, took a controlling stake of 51%, provided a high-interest loan of £55m into the business and installed William Stobart as executive chairman to oversee the turnaround.
The plan featured a renewed focus on the fast-moving consumer goods and grocery sectors and a significant reduction in its cost base, at a time when the Covid crisis increased demand for its logistics and transport services. In fact, this year has seen Eddie Stobart Logistics win contracts with Wm Morrison and McBride in the UK, and Nike and Amazon on the Continent. The DBay deal, together with re-organisation costs and other investments, pushed up the net debt from £236.9m to £242.7m by 31 May 2020, but operating cash flow during the period was positive and the company has started to make debt repayments.
A logistics-focused investment company
In April this year, Adrian Collins, former chairman at Liontrust Asset Management and managing director at Gartmore Investment Management, was appointed non-executive chairman. The stated aim for Eddie Stobart Logistics is now to become a logistics-focused investment company by December 2020, with DBay Advisors as investment manager. How this plays out remains to be seen.
In May, the company spent £10m to settle the confusion in investors’ minds between Eddie Stobart Logistics and Eddie Stobart Group (LON:STOB). Eddie Stobart Logistics acquired the brand names ‘Eddie Stobart’ and ‘Stobart’ from Eddie Stobart Group to reinforce its brand value and its status as Britain’s best-known transport and logistics business. Eddie Stobart Group, which focuses on aviation, infrastructure and engineering, has agreed to find a new name by February 2021.
William Stobart, son of founder Eddie, believes they have overcome their past challenges, expecting an underlying EBITDA of more than £33m and a reduction of net debt for the year to 30 November 2020. Certainly, the share price has become much less volatile since May, trading at around 8.00p, and we think this is likely to continue at least until next year. If investors are sceptical about DBay’s intentions, they will also have to be patient.