DX Group (DX/ LN): Delivering Exactly – stock market havoc

dx_tracktor DX Group (DX/ LN) is a UK based parcel delivery group, focuses on next day deliveries. Group’s initials stand for ‘Delivering Exactly’, this time they delivered market havoc. After a profit warning on 13/11/15 the stock price collapsed by two thirds from GBp 86 to GBp 20.

Currently the market cap shrinked to GBP 42.6m. The latest published accounts (30/6/15) show minimal Net Debt at GBP 1.8m, which appears not threatening if we consider the full year EBITDA last year came at GBP 33.7m. In the same fiscal year, DX generated Operating cashflow GBP 27.7m which was used GBP 9.2 in investments and GBP 8m distributed as dividends.

The Chaos begins on Friday 13th of November, when DX delivered an RNS announcement titled Profit Warning that unleashed sell orders and panic.
The document can be found here , management says: a) Revenue in Q1 will be down-5.3%, b) balance sheet remains robust, c) intention to pay a full year divi 2.5p. At today’s closing price, this sets DX at 12% Divi yield – not bad at all.

The house-broker forecasts FY16 EBITDA 20m (1/3 less than last year), this values the group at x2.2 EV/EBITDA and x0.22 P/BV, which could make DX group a lucrative takeover target. Screen Shot 2015-12-01 at 23.12.04

What happened? Management said overcapacity hit pricing and the core DX Exchange documents business is seeing higher than expected levels of volume decline (c. 10% vs initial forecast at 6%). Management also said driver shortages at peak season added to cost pressures.

How bad can it get? Worst comes to worst, DX could start delivering other items than papers, that are similarly time-critical (i.e. internet deliveries, flowers maybe?) I think the market panicked and some big shareholders rushed through the exit door – where there were no buyers.

It is encouraging to see a new shareholder joining the shareholder list, “River and Mercantile Asset Management LLP” bought enough to cross the 5% threshold.

Rivals Royal Mail (RMG LN) and UK Mail (UKM LN), have both reported stiff price competition, probably the market over-reacted as the memories of City Link collapse remain vivid.

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