Good morning!


DX (Group) (LON:DX.)

Share price: 81p (down 0.6% today)
No. shares: 200.5m
Market cap: £162.4m

Results y/e 30 Jun 2015 - the figures announced today look quite good to me, considering the low valuation on the shares. This is a delivery company, of mail, parcels & freight.

  • Turnover of £297.5m (down 4.6%)
  • Operating profit of £25.3m (down 6.6%)
  • EBITDA flat at £33.7m
  • Adjusted EPS 1.9% at 10.9p
  • 4p final divi, total for the year 6p = yield of 7.4%

Note that the PER comes out at only 7.4 (based on a share price of 81p, and adj EPS of 10.9p)

Let's cut to the chase - why is it so cheap? After all, it's rare these days to find a share where the PER = divi yield, which is the case here, with both at 7.4. Is the balance sheet ropey?

Balance Sheet - businesses that are floated by private equity owners are usually left with too much debt, but in this case it looks fine - net debt was only £1.8m at 30 Jun 2015 - negligible really, for a business this profitable.

Net assets of £194.2m is dominated by intangibles of £199.3m, so writing that off takes NTAV down to negative -£5.1m. That's not a concern, given the high level of profitability, and the favourable cashflow - customers seem to pay up-front, since there is deferred income of £23.9m shown in current liabilities - i.e. the business is partially financed by customers paying up-front, which is fine if you can keep that rolling.

The current ratio of 0.74 looks weak, but that is largely because customers are paying up-front, so it's skewed by deferred income - again, not a concern for such a strongly profitable company with minimal net debt.

You can't look at the balance sheet in isolation, it has to be seen in the context of how profitably & cash generative a company is. So whilst this is not a particularly good balance sheet, it's absolutely fine overall due to the strong profits.

Note also the large upcoming capex of £35m (net of property disposals) for a new Midlands distribution site of 44 acres. The new site should be operational by Q2 2017, so there might be some disruption to operations when that move goes ahead. Although the company is only a box-shifter, so it really should be a fairly straightforward matter to move premises. Net debt will…

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