MIDAS SHARE TIPS: Couch potatoes help drive logistics firm Clipper in new directions
Enthusiastic British shoppers are expected to spend more than £100 billion online this year and forecasters predict that by 2022 a third of all UK sales will be conducted on the web.
The trend towards couch-potato shopping is a fabulous chance for retailers to cash in, but it also presents store owners with some serious logistical challenges.
This is where Clipper Logistics can help. Floated on the stock market in May, it helps retailers with issues that range from storing goods to speedy returns and even eBay sales.
It's a wrap: The company makes sure clothes are packaged properly before they are delivered
At 140p, the stock has already made progress since flotation, but there is still plenty of long-term potential and the chance of some generous dividends along the way.
Clipper was founded in 1992 by Yorkshireman Steve Parkin. Originally a miner, Parkin left the coalface after just 18 months, gained a heavy goods vehicle licence and in the early 1980s started delivering fish in the North for a company called Clipper Seafood.
Starting his own business a few years later, Parkin took the Clipper name because it conveyed speed and efficiency and he had rather enjoyed his years in the fish trade.
Back then, internet retailing did not exist and Parkin focused on transporting goods for retailers from depots to stores. However, as e-commerce developed, Clipper raised its game.
The group still does basic distribution for retailers, but it offers a range of other services besides. These include warehousing goods when they arrive from overseas, making sure clothes and other items are properly packaged for sale and even delivering them to individual customers who have shopped for goods online.
Clipper boss: Steve Parkin
The company operates many retailers’ e-commerce systems for them, taking orders, making sure the goods go where they are supposed to and handling returns, steaming, pressing and cleaning pet hairs from unwanted clothing so they can be put back on sale quickly. Importantly, too, Clipper helps to ensure retailers’ customers are refunded promptly so they do not feel badly treated.
The group assists a string of large, blue-chip names with their internet offer and customers include John Lewis, Tesco, Asda, Morrisons, Asos, Superdry and Harvey Nichols. However, Clipper focuses only on non-food items, such as clothing at Tesco, cigarettes, stamps and plugs at Morrisons and trampolines, bicycles and other paraphernalia at Asda.
Clipper also guides smaller store groups in setting up e-commerce operations and has helped a number of customers to build their businesses in this way. Most of the group’s contracts are for three to five years so it already knows that it will enjoy a certain level of growth.
The business is highly cash-generative. It leases warehouses rather than owning them outright, it does not have large upfront costs and most of its contracts involve being paid in the same month that it delivers services to customers.
Clipper has a successful commercial vehicle business, too. This operates as a virtually independent subsidiary with 1,700 customers, including Clipper itself. The business makes steady profits and contributes tidy cash sums to the group, particularly as it services vehicles as well as selling them and commercial vehicles need to be serviced every six weeks.
In the year to April 2013, Clipper delivered underlying pre-tax profits of £8.7million. This year’s figures will be released this month and are expected to show a rise to £9.6million, increasing to almost £12 million in 2015 and £13.8 million the year after.
The company expects to grow by offering more services to existing customers, by taking on new ones and expanding overseas. Parkin already has operations in Germany – having moved there to help UK retailers with online trade abroad – and he hopes to continue in the same vein.
In recent years, Clipper has introduced new ideas, such as Boomerang – handling returns for retailers – and an eBay shop, Genesis- UK, to boost customers’ online sales. More such innovation is expected in the future.
Given its strong cash generation, Clipper intends to pay out about half its post-tax profits in dividends, which will deliver a yield of about 4 per cent. The first payout will be an interim dividend for the six months to November, swiftly paid before December 31.
Midas verdict: Parkin has wanted to be the chairman of a public company since he was in his 20s. Now 53, he has finally made it and is ambitious for the business, of which he still owns 40 per cent. The company has done well over the past 20 years, but the best may be yet to come. Online retailing is growing fast and Clipper provides an essential service. Buy.
Traded on: Main market Ticker: CLG Contact: clippergroup.co.uk or 0113 204 2050
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