Sector Spotlight: Industrial Transportation

In this week's sector spotlight, I look at industrial transportation; are there any opportunities for investors in this sector?

Article updated: 30 September 2020 1:00pm Author: Michael Baxter

I have had to lower the bar on the industrial transportation sector. Usually, I focus on companies that have seen strong growth in profits over the previous five years (impact of Covid, aside) and have market caps over £50 million.

Well, there aren't many companies in this sector that tick both those boxes. There are an awful of companies that have seen profits steadily fall over this time frame.

And yet this is a sector with opportunity. Online shopping/e-commerce, which has seen an acceleration in take-up caused by Covid, is creating demand for delivery systems. Technologies such as autonomous vehicles, delivery robots and drones could revolutionise the industry.

Today I look at companies that have either seen good profits growth over the last few years with a market cap over £40 million, but because there are so few companies in this sector fitting that description, I also look at all firms valued over £1 billion. I also include one other company, mainly because The Share Centre recommends it, so I thought it was worth a look.

Braemer Shipping Services

The market cap of Braemer Shipping Services is £48 million, but profits have increased 22-fold since 2017. On the other hand, this growth has slowed markedly in the last two years, and revenue has declined since 2017. On the other hand, dividends are not bad, and its paper value exceeds market cap. The balance sheet looks a little worrisome. The company provides technical expertise and professional marine and energy services around the globe. It describes itself as the "The home of integrated marine & energy services." On the unveiling of its preliminary results for the year to the end of February Ronald Series, Executive Chairman of Braemar, said: "Shipbroking delivered an excellent performance, well ahead of our expectations, with underlying operating profit of £11.7 million, up 26 per cent over the previous year.”

However, the company stated: "Despite continued growth in client retainers and Group collaboration, the Financial Division performance was subdued due to market conditions." And that related to a period mainly before Covid.

Share price 152p
2020 high 224p
2020 low 95p
Five year high (2015) 470p
All time high (2014) 560p
Change last 12 months -23%
Change last five years -66%
Change since 2001 -20%
Market cap £m 48
Yield % 3.29
P/E 12
Revenue growth since 2015 -11%
Pre-tax profits growth since 2015 2,233.3%
Total assets/total liabilities 1.5%
Current assets/total liabilities 0.5%
Current assets/current liabilities 0.7%
net assets £m  57.0

Fisher (James) & Sons

Profits grew by just six per cent since 2016, on the other hand, revenue was up by a third. Fisher (James) is a specialist services provider to marine, oil and gas and nuclear industries. It operates four divisions; Specialist Technical, Tankships, Offshore Oil and Marine Support.
The Share Centre rates it as a buy, focusing on the potential for the company to integrate its services into contract packages and to increase profit margins. It could also benefit from offshore wind turbines.

Share price 1,166p
2020 high 2,050p
2020 low 1,112p
Five year high (2019) 2,220p
All time high (2019) 2,220p
Change last 12 months -42%
Change last five years 22%
Change since 1996 970%
Market cap £m 587
Yield % 0.97
P/E 16
Revenue growth since 2015 32.4%
Pre-tax profits growth since 2015 6.7%
Total assets/total liabilities 1.7%
Current assets/total liabilities 0.6%
Current assets/current liabilities 1.5%
net assets £m 314.0

Jet2 PLC (formerly known as Dart Group)

At last, we find a company that has enjoyed strong growth. Profits are up by around a half, revenue has more than doubled, since 2016.

Formerly known as Dart Group Plc - Jet2 plc specialises in the provision of ATOL licensed package holidays by its tour operator, Jet2holidays, to leisure destinations in the Mediterranean, the Canary Islands and to European Leisure Cities, and the provision of scheduled holiday flights by its airline, Jet2.com.

The company changed its name after it sold its logistics business and became more focused on leisure travel.

I have one big doubt of course: Covid. Clearly, the virus will have hit the company hard this year; how rapidly the Covid crisis ends and the speed with which tourism goes back to normal, if it ever does, will affect future performance.

Earlier this month, Philip Meeson, executive chairman, said:

"After grounding our aircraft fleet in mid-March, we were pleased to resume operations on 15 July, gradually ramping up summer 2020 flying to approximately 40% of our planned destinations for August.

Whilst there have been setbacks, such as the imposition of quarantines and evolving guidance from the UK Government, we have been satisfied with the average load factors and financial contribution achieved to date and will continue to add further capacity, as appropriate."Winter 20/21 forward bookings have yet to match our revised on-sale seat capacity, with customer bookings displaying a shorter lead time than in previous years.

Therefore, pricing for both our leisure travel products – end-to-end package holidays with Jet2holidays and flight-only seats with Jet2.com – will need to remain consistently enticing.

For summer 2021, we plan to fly to all our popular leisure destinations with an appropriate, tailored level of service, which we anticipate will be close to summer 2019 seat capacity levels.

Bookings to date are encouraging, with average load factors ahead of the same point last year and package holiday customer numbers as a proportion of total departing customers showing a material increase."

Share price 637.5p
2020 high 1,926p
2020 low 305.8p
Five year high (2020) 1,926p
All time high (2020) 1,926p
Change last 12 months -29%
Change last five years 34%
Change since 1988 490,285%
Market cap £m 1,140
Yield % 0.47
P/E 9
Revenue growth since 2015 155.2%
Pre-tax profits growth since 2015 42.3%
Total assets/total liabilities 1.2%
Current assets/total liabilities 0.7%
Current assets/current liabilities 1.1%
net assets £m  634.0

Royal Mail

It is tempting to say Royal Mail who? Apparently, there was a time when people used to send messages to one another by writing on paper, putting the paper in a kind of bag called an envelope and then put an adhesive label on the envelope, often adorned with a picture of the queen, and stick it in a red box.

This was a long time ago, even before e-mail and a long time before Whatsapp.

But back when people used to follow this strange practice — I believe it was called posting letters — people used to buy stuff from places called shops.

Delivery of goods to homes and businesses is as important today as ever, and that should create opportunities for organisations like the Royal Mail.

But delivery is changing too, from pickup lockers, to delivery robots and drones.

But when I Google drones and Royal Mail, I find a spat of articles written several years ago. There is a dearth of articles connecting the Royal Mail with delivery robots, and where they do exist it's in the context of alternatives to the Royal Mail.

You have to embrace disruptive technology early on, leave it too late, and you will never catch up; I worry about The Royal Mail.

Share price 239.7p
2020 high 239.7p
2020 low 124.3p
Five year high (2018) 631p
All time high (2018) 631p
Change last 12 months 13%
Change last five years -48%
Change since 2013 -47%
Market cap £m 2,397
Yield % 3.13
P/E 15
Revenue growth since 2015 10.9%
Pre-tax profits growth since 2015 -46.3%
Total assets/total liabilities 2.0%
Current assets/total liabilities 0.6%
Current assets/current liabilities 1.0%
net assets £m  5,621.0

Ryanair

What can one say about Ryanair that isn't glaringly obvious?

It has a lot of debt, and current liabilities exceed current assets.

Recently the airlines' boss, a certain Michael O'Leary, who is not exactly shy and tactful at the best of times, was asked about his confidence in Covid testing at airports. He said: "I mean the British government doesn't have any competence, never mind confidence."
He added: "We have never seen such awkward forward bookings."
He also said: "You know the example that we point to all the time is that the Italians and the Germans have been allowing flights, intra-EU air flights since 1 July and have managed to keep their COVID case rates down around 20 per 100,000.

"In the UK, for example, the government is mismanaging the situation. They've limited the number of flights people can take and yet you've seen huge outbreaks of COVID cases here in the UK because you don't have an effective test and trace system.”

Clearly, the airline industry will see a shakeout. On the other hand, those that can survive may find they face less competition come recovery, whenever that will be.

Share price 10.99p
2020 high 16.1p
2020 low 8.14p
Five year high (2017) 18.6p
All time high (2017) 18.6p
Change last 12 months 6%
Change last five years -20%
Change since 1998 1,108%
Market cap £m 12,434
Yield %
P/E 19
Revenue growth since 2015 27.8%
Pre-tax profits growth since 2015 -54.4%
Total assets/total liabilities 1.5%
Current assets/total liabilities 0.5%
Current assets/current liabilities 0.8%
net assets £m  4,964.0

Signature Aviation

Back in 2016, Signature Aviation made an $82 million loss. In the year ending 25 January 2020 profits were $23 million. On the other hand, in 2017 and 2018, profits exceeded $100 million, and revenue has grown only very modestly since 2016.

The company describes itself as "the world's largest fixed-base operation (FBO) network for Business & General Aviation (B&GA) travellers."

In the half-year to 30 June, organic revenue was down 29.3 per cent due to the impact of COVID-19. Underlying operating profit was down 55.2 per cent to $79.4 million (H1 2019: $177.4 million)

Mark Johnstone, Signature Aviation Group Chief Executive, said:

"I am encouraged by the extent of the flight operations recovery we have seen. August flight activity was down 19% year on year across our network, a marked improvement to the low point of 77 per cent down in April. We will closely monitor trading in the important US business traffic season, post-Labour Day.

"Building on our effective cost management and with our flexible cost base now aligned with anticipated flight activity, we expect improved performance in the second half compared to the first half.

Our business has sound fundamentals, and we continue to see attractive medium-term growth prospects. Therefore, we have continued to invest in growing our network despite COVID-19. We have recently acquired two FBOs in Switzerland, including the strategically important Geneva location. In the US, we were pleased to open our newly constructed Atlanta FBO in July."

Share price 235.9p
2020 high 327.2p
2020 low 142p
Five year high (2018) 469p
All time high (1999) 487p
Change last 12 months -40%
Change last five years -7%
Change since 1988 75%
Market cap £m 1,952
Yield % 1.82
P/E 5
Revenue growth since 2015 5.2%
Pre-tax profits growth since 2015 -105.6%
Total assets/total liabilities 1.5%
Current assets/total liabilities 0.2%
Current assets/current liabilities 1.0%
net assets £m  1,606.0

Wincanton

Superficially, there is nothing special here: profits have been flat over the last few years, the balance sheet is nothing special, and the dividend yield is around two per cent.

The company says it provides "supply chain consultancy and solutions to some of the world's most admired brands. We employ approximately 19,100 people across more than 200 sites and have a 3,500-strong fleet of vehicles. Improved stock visibility and availability, reduction of lead times, collaborative warehousing and transport models, and an absolute commitment to continuous improvement, are just some of the reasons why many of our customer relationships extend to more than 20 years."

In other words, it is a trucking company. So, what is interesting about the company? Take a look a recent announcements. https://www.wincanton.co.uk/news/ It is a catalogue of new contract wins, often involving e-Fulfilment
Earlier this month, the company said: "Given the combination of Wincanton's improved trading performance, cost intervention measures and the recovering economy, the board expects results for the current year to be materially ahead of market expectations."

Share price 193p
2020 high 313p
2020 low 155p
Five year high (2020) 313p
All time high (2007) 428p
Change last 12 months -16%
Change last five years -8%
Change since 2001 -8%
Market cap £m 240
Yield % 2.02
P/E 6
Revenue growth since 2015 7.4%
Pre-tax profits growth since 2015 -2.2%
Total assets/total liabilities 1.0%
Current assets/total liabilities 0.4%
Current assets/current liabilities 0.7%
net assets £m  15.0

All prices are approximate figures taken from 25 September 2020.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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