London, UK, 30 October 2018

Edison issues outlook on Eddie Stobart Logistics (ESL)

Eddie Stobart Logistics (ESL) saw a strong level of new contract wins in H118, which contributed to its 25% revenue growth, of which 10% was organic. We believe that new opportunities are arising as customers look to outsource their logistics to both save money and cope with the shift to e-commerce. ESL's e-commerce revenues rose from 5% of the total in FP14 (8M14) to 21% in H118. As well as organic growth, the company is seeing a good revenue and profit contribution from acquisitions as it looks to further consolidate a fragmented market. In June, ESL completed its largest acquisition since listing when it bought The Pallet Network (TPN), which adds pallet distribution to its range.

We use a DCF model to value ESL. Our DCF valuation of 190p/share, which is unchanged, provides 73% potential upside to the current share price of 109.5p. We use a WACC of 6.9% and a terminal growth rate of 1%. We note that ESL is the second lowest rated company in our pan-European logistics peer group and yet it has the highest EBIT margin. The next scheduled event will be the full year pre-close statement in November, which could be a positive catalyst if the current growth rate continues. We have made adjustments to our estimates so that our 2018 EPS reduces by 5.9% and our 2019 EPS reduces by 0.9%.

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