London, UK, 19 June 2017

Edison issues initiation on Eddie Stobart Logistics (ESL)

Through a mixture of winning new outsourced logistics contracts, exposure to the substantially higher-growth e-commerce subsector and solid underlying market growth, we forecast that Eddie Stobart Logistics (ESL) will grow EBIT at 15.3% CAGR over the next three years. Since being taken private in 2014, ESL has brought in new management and grown earnings significantly. Listing on AIM in April 2017 enabled the company to pay down debt, make a small acquisition and set the business up for the next phase of expansion. Despite its sector-leading operations and outlook, ESL trades at a discount to its global peers. We believe it should trade at least in line and our fundamentals-based valuation per share of 200p offers equity holders upside of 26%.

Trading on an FY18e EV/EBIT of 11.5x and P/E of 12.9x, ESL trades below a global average of its peers (14.2x and 19.8x, respectively). However, ESL's superior profitability (7.4% EBIT margins versus a sector average of 5.0%) and growth profile (EBIT growth of 15% CAGR versus low single-digit percentages in the sector) deserve a premium to its peers. This view is reinforced by our fundamental valuation of 200p per share. The 26% upside to current trading levels is derived through three valuation methodologies: DCF, peer comparison and an economic value added (EVA) analysis.

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