An Eddie Stobart truck is one of the most recognisable sights on Britain's roads. The trucks have a huge fan club and there's even a TV series about them. But do the shares of parent company Stobart Group warrant the same level of affection?
Moving goods from place to place is what makes economies work. Known in the trade as logistics, it is also a hard way to make a living. Competition at the bottom-end, box-shifting part of the market is cut-throat. To survive, firms such as Stobart have to become a major part of a firm's supply chain and make sure that goods are delivered on time in the most efficient way possible.
Stobart is quite good at doing this and has a decent reputation. But that doesn't change the hard facts of this business. Essentially, it's all about keeping your fleets of trucks and warehouses as full and as busy as possible. This has been quite a challenge in recent months, as some of Stobart's customers had expected to be a lot busier than they have turned out to be.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
This is not a huge surprise, given the weak British economy, but for a company like Stobart, with all the costs of renting trucks, warehouses and fuel, a small reduction in sales can lead to quite a big drop in profits. So it will keep cutting costs and becoming more efficient to keep profit levels respectable.
Given that the trucking business dominates the group, the tough business conditions here have probably put a lot of investors off buying the shares.
Stobart Group (LSE: STOB)
But there's a lot more to Stobart than trucks. In fact, it has some quite interesting assets that aren't making lots of money yet, but have the potential to do so in a few years' time.
The most interesting of all is Southend Airport, which is now officially London's sixth airport. More than £100m has been invested here in assets, such as a new terminal building, a good railway link to London Liverpool Street, and a Holiday Inn hotel. Budget airline easyJet has signed up to fly from the airport for ten years, while Aer Lingus also flies to Ireland from here.
EasyJet is adding new routes, and there are already plans to expand the terminal building and extend the runway. This means there is potential for passenger numbers and profits to grow rapidly. If Southend can attract more passengers from nearby Stansted, then Stobart could be sitting on a very valuable asset.
The other area of potential is Stobart's biomass business. It sources biomass products, such as waste wood from the construction industry and woodchips from British sawmills, then sells them to power generators and industrial plants, which burn them to generate electricity. It also sources waste products that would have gone into landfill sites and makes fuel products out of them.
With the government looking to support biomass, this could turn into a profitable business for Stobart. This business is growing nicely and is also exporting products to Europe. It is also a good source of growing demand for the company's trucking business.
The shares trade on just over 11 times 2013 expected profits. That's probably too much for a trucking business that's heavily geared to the British economy. But throw in the potential profits from the airport and biomass businesses, and the shares start to look quite interesting.
On top of that, the 6p dividend looks safe enough for now and gives the shares a 6.3% yield at the current price of 95p. So you're being paid to wait and see if the growth projects can pay off. Given all this, the shares look worth a gamble at the very least.
Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.
After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.
In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for Moneyweek in 2010.
Follow Phil on Google+.
In the doghouse: hundreds of investment funds are underperforming - is it time to sell?
News The latest Spot The Dog research from Bestinvest reveals 151 funds are failing to beat their benchmark. We reveal the worst performers
By Marc Shoffman Published
Nationwide: House prices creep up for the first time in over a year
Nationwide’s latest house price index reveals property prices are finally rising. Will this pattern continue in 2024?
By Vaishali Varu Published
Somero: trading this overlooked bargain
Features Mechanical-screed maker Somero dominates its niche and is attractively valued. Matthew Partridge picks the best way to trade it.
By Dr Matthew Partridge Published
How to find big profits in small companies
Cover Story The small- and micro-cap sectors are risky and volatile. But with careful research and patience, investors could make huge gains. Matthew Partridge explains how to find the market’s top tiddlers.
By Dr Matthew Partridge Published
The hidden gems on Aim, London's junior market
Features Aim, London’s junior market, is risky – but you can find solid stocks at low prices. Scott Longley reports.
By Scott Longley Published
Is Aim finally coming of age?
Features The Aim market of mostly smaller companies has traditionally been seen as a bit of a backwater. Is it time to change that view? Matthew Partridge talks to Paul Latham and Richard Power of fund management company Octopus.
By Dr Matthew Partridge Published
Three Aim-listed firms that will thrive in a post-Brexit world
Opinion Matt Tonge and Victoria Stevens of the Liontrust UK Smaller Companies Fund pick three Aim-listed firms that will survive Brexit turmoil.
By moneyweek Published
Fetch! The Chinese small-cap stocks to buy in the Year of the Dog
Opinion Each week, a professional investor tells us where she’d put her money. This week: Tiffany Hsiao of Matthews Asia selects three Chinese small-cap stocks with exciting potential.
By Tiffany Hsio Published
Small and mid-cap stocks with big potential
Opinion Professional investor Guy Anderson of the Mercantile Investment Trust selects three small and medium-sized firms with promising prospects that the market has missed.
By Guy Anderson Published
Get cheap, reliable growth from smaller companies
Features One of the most reliable long-term investment trends is the long-term outperformance of smaller companies over blue chips. Max King picks some of the best ways to buy into this growth.
By Max King Published