One Logix defies road transport odds and grows earnings
THESE days it’s rare to find a growing JSElisted company that derives its earnings in any reporting period exclusively from organic rather than acquisitive sources.
But that’s what logistics services provider OneLogix has just done in its interim results to end November 2017 with revenue rising 14% and headline earnings per share (heps) 21%.
Over the past five years, the group has made nine acquisitions, and now these have all been absorbed and bedded down.
And while OneLogix is open to the prospect of further acquisitions in future, given its clean balance sheet and low gearing, any further acquisitions would obviously have to make good business sense.
OneLogix’s services extend across SA and into many neighbouring countries, as far afield as Angola and Tanzania. OneLogix CEO Ian Lourens says: “Nine out of our 11 businesses occupy positions one, two or three, in terms of market share.”
The group can conveniently be viewed in two main segments — abnormal logistics and primary product logistics.
Abnormal logistics, consisting of vehicle-delivery services and commercial vehicle-delivery services, is the largest contributor to revenue (48%) and trading profit (51%) before headoffice costs. Primary product logistics is an almost equal contributor at 45% of revenue and 44% of trading profit at the interim stage. The much smaller other logistics services contributed 7% to revenue and 5% to trading profit.
The group’s acquisition strategy over the years has been clever, as it insistently retains the entrepreneurs from whom it bought the target companies, ensuring they are freed up from admin and bureaucracy to concentrate on growing the business within the expanded OneLogix base.
“We won’t just buy a new business without taking the entrepreneur as well. Having brought him on board, we provide him with the whole backoffice environment, so he can then focus on what he is good at,” Lourens says.
The group recently entered into a R240m, 10-year sale and leaseback agreement regarding its 14ha logistics hub at Umlaas Road near Cato Ridge, Durban — having paid R130m for it in 2015 — and is looking to extend this facility by about another 10ha.
This transaction strengthened the financial position considerably, with gearing now at a comfortable 32%. Lourens highlights continuing margin squeeze as one of the main risks facing the group, but he emphasises that this is an industrywide problem and that OneLogix in fact enjoys better margins than most.
A very remote risk comes in the form of possible greater use of rail freight services in the southern African region.
But in the unlikely event that rail makes a comeback, existing logistics operators could indeed participate profitably in the rail freight space, as prominent UK road logistics operator Eddie Stobart did in recent years.
With a total fleet of 806 units, average age is about 4.5-5 years, with 70 of these vehicles structured on an operating lease product. All new expansion and replacement of trucks will be done on an operating rental basis at somewhere between 60 and 80 trucks a year, meaning that progressively less capital is being tied up on the balance sheet in the form of fixed assets. All trailer equipment will always be owned on-balance sheet.
OneLogix has an enviable earnings growth track record, coupled with low gearing and capacity to expand as and when conditions permit.
It has not only survived the current economic downturn but has adapted and flourished. The outlook for OneLogix is perhaps worth considering. Trading at an 11 times price: earnings ratio, it is not expensive.