We reckon Eddie Stobart Logistics’ (ESL:AIM) growth plans could prove very rewarding for shareholders.

Floating on the stock market in April, the company has already communicated a clear growth strategy which involves focusing on existing and new contracts, as well as e-commerce services.

According to Edison analyst Jamie Aitkenhead, existing contracts accounted for 67% of the company’s sales in 2016.

It achieved 8% organic growth in its last financial year, significantly higher than the 2.5% market growth in the UK logistics sector estimated by Cenkos.

You've heard the name but what does it do?

Initially founded by Edward Stobart in 1970, the company transports cargo for retailers and the e-commerce sector, and operates storage facilities across the UK.

The company also operates a fleet of specialist equipment to carry loads for businesses in the manufacturing and industrial sectors.

Former parent company Stobart Group (STOB) sold 51% of its transportation and distribution division to private equity vehicle Greenwhitestar.

That business is now what’s called Eddie Stobart Logistics which has reappeared on the stock market as a standalone entity.

Stobart Group retains a 12.5% stake, while Greenwhitestar has reduced its position to 15%.

The shares are undervalued

Aitkenhead is optimistic about Eddie Stobart’s prospects, forecasting earnings before interest and tax will grow at compound annual growth rate of 15.3% over the next three years.

He believes this will be underpinned by new contracts, a growing e-commerce sector and solid underlying market growth.

Eddie Stobart currently trades on an undemanding forecast price-to-earnings (PE) ratio of 12.8 for the year to November 2018, which is a discount to 19.8 for its peer group according to Edison.

It is also anticipated to have a 3.5% dividend yield this year, considerably higher than the sector average of 1.1% quoted
by Edison.

M&A opportunities in fragmented market

Eddie Stobart is playing into a structural shift within retail in the UK from physical shops to e-commerce – selling and buying products online.

The fragmented UK market also presents an opportunity for Eddie Stobart to build its business through mergers and acquisitions in the manufacturing, bulk and e-commerce sectors.

One of the risks is Brexit negotiations as stringent regulations could affect the movement of goods between the UK and EU although chief executive Alex Laffey is confident a solution will be found.

Other potential headwinds include a potential crackdown by the UK to tackle dangerous levels of pollution thanks to pressure from the EU.

Fortunately, approximately 95% of Eddie Stobart’s lorries are eco-friendly and comply with the highest expectations from the European Standards system. (LMJ)

Eddie Stobart Logistics (ESL:AIM) 158.5P

Stop loss: 126.8p

Market value: £567.3m

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