Will UK Mail Deliver A Profit?

23rd Mar '11 by 10 Value 10

2 comments 4870 reads

UK Mail (LON:UKM) claims to be one of the leading independent parcel, mail and logistics services companies within the UK and the main alternative to Royal Mail for business requirements.

Why Am I Interested?
It pops up on my new prototype screen (one of the '19' identified in Financial Ratios); Reasonable valuation/yield - PER of 13x and yield of 6%; and Cash generative and net cash on the balance sheet.

Background

History & Business Model

The Business was set up in 1974 by Peter Kane, who acts as Chairman, and grew with the help of his brother, Michael Kane, who stood down as Non-Exec to retire in 2010. The Kane brothers and family hold 59% of the ordinary share capital of the Company. The Company is organised into four separate divisions: Mail - 45% of turnover and 7% operating margin - collects up to 17m mail items a day for over 1,000 corporate customers. Mail is sorted, consolidated and handed over to Royal Mail to deliver the final mile. Licensed by Postcomm (= barrier to entry); Parcels - 43% of t/o, 9% op margin - next-day B2B and B2C parcel delivery services; Pallets - 8% of t/o, 6% op margin - distribution of palletised goods through a network of 80 suppliers; and Courier - 4% of t/o, 13% op margin - same day delivery service.

The Business has grown turnover every year since 2001 (except for a flat 2010) and operating profit has been between £12m and £20m each year. Operating margins have fallen as lower-margin Mail has taken an increasingly large share of turnover, and there was a slight blip in 2006 when cost-cutting measures and price increases back-fired. The existing CEO joined at the end of 2005 and has grown PBT three-fold since then.

The Strategy is to strengthen its position as the "UK's leading integrated postal group" through (i) integrating the network (think IT) to make best use of resources (lowest cost) to deliver the breadth of services offered and (ii) increasing market share through new products and services. The Company changed its name from Business Post Group to UK Mail in October 2009.

Investor Relations is here

Share Price & Value

The current…

Unlock with Email

Unlock with Google

Already have an account?
Login here

Mark Carter

28th Mar '11

Unfortunately, UK Mail (LON:UKM) issued a downbeat pre-closing trading update today, sending the shares down 11% to 275p. Don't you just hate that when it happens just after topping up? A few days ago, I suggested that the current high yield would act as a floor on the share price; but alas, it was not to be.

Here are some interesting snippets from the trading update over at http://www.investegate.co.uk/Article.aspx?id=201103281624237646D : "As reported on 12 January 2011, underlying volume growth in the third quarter had been generally lower than expected ... Since them, fourth quarter volumes in our parcels business have been subdued ... the Board intends to recommend an unchanged final dividend ... current economic conditions may continue to hinder our growth".

I notice that earlier this month, The Star (http://www.thestar.co.uk/news/business/magn_ificent_move_for_uk_mail_group_1_3158261) reported that UK Mail (LON:UKM) had moved its South Yorkshire operation to bigger premises. This ties in with the mention of growth by the directors.

The balance sheet of UK Mail (LON:UKM) is solid, and it looks likely that the divvie will be maintained. At over 6pc, that's a generous yield. I also notice that the price to free cash flow is is under 10, and is the kind of company that someone like Berkowitz might be interested in. The company's ROE has been consistently high throughout the last decade, although net profit margins have taken a beating during the last five years. It looks like this company is going to make investors sweat for their money; but I think that now would be the wrong time to bail out on it.

10 Value 10

29th Mar '11

Hi Blippy

It's all in the timing! As "profit warnings" go, I've seen worse and profits coming in 10% or so below prior year shouldn't cause the end of the world, particularly given the strong balalnce sheet. It's reassuring to see that dividend is being maintained, which gives some reassurance that profits are still turning to cash (unless they are raiding the piggy bank). It will interesting to see what extent the profit shortfall is caused by "one-offs" (I hate the excuse of the snow, but at least we can all relate to it) and what is caused by softer trading, which is more of a worry.

My fundamental view of the company hasn't changed and I've topped up, bringing my average cost to below 300p. Who knows where the floor is, but I'm buying for the long-term.

Will UK Mail Deliver a Profit?

Unlock the rest of this article with a 14 day trial

About the Author

10 Value 10

2 comments

Unlock the metrics for all these stocks and more...

Unlock the metrics for all these stocks and more...