Companies that ensure the smooth transport of goods, manage large warehouses and deliver online purchases act as a vital artery in the British economy.
But apart from Royal Mail, there are not many large-cap stocks through which investors can gain exposure to the UK logistics sector. Many operators in the country are either privately owned or subsidiaries of larger foreign groups.
Yet at the lower end of the London Stock Exchange are a handful of smaller listed companies that offer logistical support services, ranging from secure document delivery to air cargo handling, for a wide range of customers and industries.
In addition to their traditional areas of activity, they are seeking to ride on the boom in ecommerce that is reshaping how products are ordered, dispatched and shipped, whether to consumers or business customers.
With services that include trucking, warehousing and inventory management, Wincanton is among the UK’s largest supply chain outsourcing providers.
The stock has rallied almost 50 per cent following the reinstatement of an interim dividend in November, when Wincanton posted a more than one-third rise in underlying half-year pre-tax profit to £20.7m.
Since then, the company has bagged a couple of important contracts. One is a four-year deal with the flat-pack furniture retailer Ikea to lease and fit-out two new distribution centres in London.
This week Wincanton announced a five-year agreement with the British retailer Wilko, for which it will manage all transport operations. But along with DHL, it lost out when Tesco decided to bring warehouses operations back in-house earlier this year.
Wincanton’s share price bounce has come in spite of lower revenues, resulting from a move to exit contracts with poor returns. Analysts say it is turning towards markets with good growth prospects, such as multichannel retail and cement.
The stock has gained 10.2 per cent so far in 2017 to trade at 271p, giving a market capitalisation of £335m.
Since floating on the Alternative Investment Market three years ago, DX has not delivered the goods to investors. Shares in the small-cap have crashed to 8.3p from an initial public offer price of 100p on the back of underwhelming performance.
Established during the Royal Mail strikes of the 1970s, DX specialises in next-day delivery for mail, parcels and heavier items requiring two people.
The company’s troubles are in part down to declining activity at its secure document handling service, which is suffering from the effect of digital substitution. Yet they also reflect the fierce competition it faces in the expanding UK parcels market.
A rare bright spot came last autumn with the renewal of a contract with HM Passport Office. Brokerage Cantor Fitzgerald has estimated this accounts for about 6 per cent of DX’s annual revenue, which dropped 3.2 per cent to £288m in its most recent financial year.
But the scale of the group’s problems was starkly illustrated last month, when management said profits this year would be “significantly below” market forecasts and that no dividends would be paid “for the foreseeable future”.
Piling further misery on DX, a trade union has begun legal action against the company, alleging that it wrongly classes drivers as self-employed.
Shares in DX have lost more than half their value this year, valuing the company at £16.6m.
Scotland-based John Menzies is betting big on aviation, having recently completed the $202m acquisition of plane refueller ASIG — the biggest in the group’s 184-year history — from BBA Aviation.
The company has said the deal will create one of the largest aviation services businesses in the world, complementing the work it already performs, such as aircraft de-icing, exterior washing, cargo handling and cargo container repair.
Whether the enlarged division can fit alongside Menzies’ other unit, an overnight logistics network that operates in a distinctly different market, is a question being probed by management with the help of advisers at Rothschild. As part of this exercise, it is also reviewing the structure of a pension scheme that is being closed to future contributions.
Menzies was commonly known as a high-street newsagent before selling its shops in the late 1990s to rival WH Smith to concentrate on distribution. But that arm of the group is grappling with the long-term decline in print media, as people buy fewer newspapers and magazines.
The company is attempting to offset the lost business by diversifying into other areas, such as parcels delivery and logistics work for retailers.
Shares in Menzies have risen this month after it revealed an 8.8 per cent increase in annual pre-tax profit to £19.8m. The stock has gained 4.3 per cent so far this year to trade at 621.5p, valuing the company at more than £500m.