This company has two main divisions: Distribution of newspapers and magazines and Aviation (mostly cargo and baggage handling).
Last week it released a trading update, causing the shares to fall by 30% in one day, giving a nice dividend yield of 8% (though I suspect management may cut that back).
WHAT DID MANAGEMENT SAY?
Apart from mentioning contracts’ wins, mostly in (North America), there’re three words to remember:
1. Margins; - the company said its UK distribution business was feeling the squeeze in margins for this year and next. Surprisingly, it has replaced the leadership as well.
2. Debt; - management mention taking on short-term debt, so expect an increase in interest payments.
3. Taxes; - it also said the company’s taxes will exceed 30%, because of changes in US tax laws. Taxes have already increased to 27% in H1 2014 from 25% in H1 2013.
What do the above means to the company’s bottom line?
You guess it, LOWER PROFITS!!!
How low? We just don’t know, but more importantly what does it mean for the future of the company’s share price.
Analytical outlook
Here is the company’s distribution of revenue in the two divisions:
| Revenue | Pre-exceptional operating profit/(loss) | |||
| 2013 | 2012 | 2013 | 2012 | |
| Restated | ||||
| (Note 1) | ||||
| £m | £m | £m | £m | |
| Distribution | 1,277.5 | 1,299.6 | 24.3 | 27.5 |
| Aviation | ||||
| - ground handling | 454.0 | 422.1 | 21.9 | 21.3 |
| - cargo handling | 149.8 | 158.6 | 11.7 | 9.7 |
| - cargo forwarding | 119.0 | 116.5 | 4.2 | 3.8 |
| 722.8 | 697.2 | 37.8 | 34.8 | |
| Corporate | - | - | (2.0) | (1.3) |
| 2,000.3 | 1,996.8 | 60.1 | 61.0 | |
| Joint ventures and associates | (94.9) | (93.3) | - | - |
| 1,905.4 | 1,903.5 | 60.1 | 61.0 |
As seen above, their baby is the aviation division with operating margin exceeding 5%of revenue. Its laggard, the distribution division makes up for the bulk of its revenue, but operating margins at razor-thin of 2%.
Given that the iPad and among many different tablet devices on the market. It is no surprise operating margins are thin as newspapers and magazines are moving from print to digital, saving money from producing physical copies.
However, the company’s claims to have a 45% market share in the UK and Ireland distribution network that service over 7m daily for 25,000 customers.
The plus-side is they have 1,700 vehicles (mostly vans and lorry) in operations; these are valuable assets.
Here is the 15-year price chart:
Note: the above chart may not be fully display, if not click on this link.
Below are the company’s sales, earnings, free…
