Transport biz ‘outperforms itself' in FY22, targeting similar FY23

Australia’s logistics sector recently hit a speed bump with the collapse of one of its biggest cold trucking companies, Scott’s Refrigerated Logistics, leaving a gaping hole where its market share used to be. Within the understandably frayed fraternity, one business is gearing up for catalytic growth in FY23.

Established in 2014 and listed on the ASX in July 2021, Silk Logistics Holdings Limited (ASX: SLH) has managed to keep its head above the water amid diesel shortages and the overarching supply chain issues stemming from the days of COVID.

“It’s performed pretty well in a difficult market. We think it’s incredibly cheap,” said Graeme Carson, Director and Portfolio Manager at Cyan Investment Management, on Reach Markets’ The Insider: Meet the Fund Manager event in February this year where he selected Silk Logistics Holdings as one of his favourite stocks. Watch the full The Insider: Meet the Fund Manager session.

Mr Carson has 20 years in Australia’s financial markets working for Macquarie, Bankers Trust and Bell Potter. He spent most of his professional life as a Senior Analyst researching and valuing ASX-listed companies of all sizes across many different sectors.

“It’s founder-led and managed and they own a large chunk of the equity and are heavily incentivised to continue the growth,” he said, adding that Silk Logistics was already growing a national footprint.

The fundie noted that the ~$180 million market cap company had outperformed its own FY22 revenue forecast of $339 million to earn a total of $394 million in the financial year out of which most was organic – a considerable increase from its $90 million financial year earnings when it started out in 2014.

“Since ownership in 2014 when management bought it out, about 60% of their growth is organic and the rest through acquisition,” Mr Carson said. In January 2022, Silk Logistics acquired Brightflow Enterprises for $31 million, followed by a $10.5 million acquisition of logistics service provider 101Warehousing in February 2022 and followed up with a $23.6 million acquisition of Perth-based Fremantle Freight & Storage (FFS) in September.

“We think that the growth in earnings on an EPS side is going to be 15-20% over the next two years and probably beyond that. And you’re only paying 8-9x earnings with income of 5% fully franked yields. It’s a very high-quality business that we think will grow strongly from here.” Mr Carson said. 

According to the fundie, one factor potentially holding the company back from significant growth is a big acquisition in June or July 2023. In its H1 FY23 results, the company reported a cash balance of $34.1 million cash targeted at acquisitions and expansion activities and 26.5% in underlying earnings per share growth.

“Trading around $2.30-2.40, we value [Silk Logistics] at $4.20 with a two-year view which is 85% upside on the capital, plus 5% yield annually fully franked,” Mr Carson said.

As at H1 FY23, the company reported a 39.1% increase in revenue ($253.6 million versus $182.4 million in H1 FY22), a 34.8% increase in underlying EBITDA ($19.7 million versus $14.6 million in H1 FY22) and a 32.4% increase in underlying NPAT ($9.8 million versus $7.4 million in H1 FY22).

Click here to view more videos from Graeme Carson’s The Insider: Meet the Fund Manager session.

Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position. Any advice contained within this presentation is general advice and does not consider your personal circumstances, you should consider whether it is appropriate for you. 

The information we are giving you is for educational purposes only. “Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss.

Past performance is not a reliable indicator of future performance.