Valuation based on 17c of EPS, 10% p.a. earnings growth over 5 years and a PE of 10.

Updated valuation in Feb 2024 after disappointing half year report.

Notes Feb 2024 - Good to see the revenue increase but the depreciation impact (mostly leases they said) has really hampered the EPS, so the two numbers went in opposite directions. The other big shift they talked to was inventory reductions by customers, meaning the warehouse utilisation dropped from 90% 6 months ago to 77% now.

So the good news is topline sales were up and they added 5% more customers to the base. The bad news was costs/depreciation increased faster and the warehouses are only 3/4 full now.

Thesis has been weakened but not busted yet. Close watch in the next 6 months - can they add some more customers and fill the warehouses up again, which will add meaningfully to EPS. And can they stabilise the cost trajectory so that the revenue growth drops to the bottom line again...

Guidance has been conservative historically and the upper end of the latest guidance would see EPS still increase 5 to 10% for the full year. Time will tell but I am OK giving them some more time for now.

Why do I own it?

# Logistics / shipping / warehousing business with very experienced management now running business as owners.

# Founders own 35% of business with a sensible remuneration plan well aligned with shareholders.

# Industry is likely to persist and grow for many years as population and online shopping increases. The business might slow over the next year or so if the anticipated recession eventuates however they should be fine with these tailwinds over 5 + years.

# They have a national footprint and their facilities are new and high quality.

# Business has a very strong focus on customer experience - actively tracking NPS and investing in systems and people to further improve the value they provide their customers. This is a big point of difference from most logistics companies.

# Good track record of high ROE / ROC and balanced dividend payout ratio

# Excellent MOS at entry point given low PE and PS so should comfortably exceed our 15% p.a. return target if they can continue to execute like they have been

What to watch?

# Have higher debt to equity ratio than we usually like however this is mostly lease liabilities on their warehouses to Goodman Group. Something to watch as renewals come up.

# Progress on NPS from the investments in customer experience they are making

# Net profit margin is 3.6% so while they doesn't leave lots of room for competitors it does mean cost increases not offset by price rises are a risk

# Might be able to make sensible acquisitions given fragmented nature of the industry or could be an acquisition target themselves if multiple gets too low