Transport and logistics small-cap CTI Logistics (ASX: CLX) reported revenue up 6.3% to $321.2 million in FY 2024, with the transport and logistics segments contributing fairly evenly, up 6.2% and 6.7%, respectively. The information management and security division was up 6.2%, though this segment only accounts for about 2% of total revenue.
Free cash flow for the period was $15.47 million, calculated by taking net cash flow from operations of $40.8 million minus expenditure on property, plant, and equipment of $28.3 million. CTI Logistics advised that they expect capital expenditure to reduce after the current period of developing property, and fleet upgrades. Profit was down 7.5% to $15.8 million as employee, transportation, and finance expenses increased over the period.
The final dividend of 5.5 cents per share brings the total dividend for the year to 10.5 cents, fully franked, up slightly on last year’s 10 cents per share.
Debt was up by $8.5 million to $38.9 million (excluding lease liabilities), as a result of the Hazelmere property development and ongoing investment in energy-efficient transport vehicles. This brings net debt to $28.5 million as of 30 June 2024.
You can see from the below chart that debt (excluding lease liabilities) has increased with the Hazelmere Development in FY24, and spending on property, plant and equipment (capex) has increased and in turn, Free Cash Flow (FCF) has declined in the last couple of years. CTI is still developing the remaining 34,000 sqm adjoining the Hazelmere property in Perth, with completion expected by mid-2025.
Source: Company filings and authors calculations
CTI Logistics (ASX: CLX) Property Assets
I like the strategy of owning warehouses and distribution centers as opposed to leasing, if executed well. CTI Logistics is purchasing and developing land, predominantly in Perth, with a regional hub in the Pilbara region, Western Australia.
The property portfolio is currently worth $136 million, which has potential to appreciate in value. Owning distribution centers means CTI Logistics can freely upgrade to accommodate any new technology or other changes, to optimise efficiency. Of course there are upfront costs, but CTI Logistics will save on lease liabilities in the future, which will help in tough times.
There is less flexibility to move locations with owning property, but if CTI Logistics is in the main centers of Australia, where 73% of Australians reside, that should not be too much of a problem. Western Australia is also the fastest-growing Australian state, which is a positive for CTI Logistics, given its focus there.
CTI Logistics Balance Sheet Property Value Per Share
Source: CTI Logistics FY24 Presentation
The utlook for CTI Logistics (ASX: CLX)
I am always interested in founder-led small companies, and CTI Logistics founder and Executive Director David Watson owns around 30% of the company, ensuring his interests are aligned with shareholders.
At the current price of $1.93, CTI Logistics trades on a trailing single-digit P/E of just under 9.5. This is lower than the other small-cap transport and logistics companies on the ASX. CTI Logistics also provides a healthy 5.4% dividend yield, fully franked. This dividend grosses up to about 7.5% once you include the value of franking credits. The share price was in a downtrend before CTI Logistics issued a profit guidance in late July, which showed a better FY24 second half, and a 25% rise in profit before tax on the prior corresponding period. This prompted a ‘please explain’ letter from the ASX.
High immigration is masking some problems in Australia’s economy. Growth is slowing, we are seeing weaker earnings in the retail and hospitality sectors, and unemployment is rising. I would be looking for improving economic conditions, and signs of profit growth before buying. Profit growth may be helped by decreases in input and financing costs, and lower capex, once the current development of property and upgrading of vehicles is complete.
Despite challenging conditions, CTI Logistics has seen steady demand for its services. CTI Logistics has definite potential as a growing founder-led small cap, but I am not currently tempted to buy the stock. You can see our prior coverage of CTI Logistics (ASX: CLX) here.
Editor’s note: I own shares in CTI Logistics, purchased at an average price of around $1.69. Like the author of the article above, I think that a recession could hurt the CTI Logistics share price. In contrast, I believe that the per-share value of the assets on the balance sheet, and the track record of paying dividends, is sufficient to compensate for that risk, at the price I paid.
Disclosure: The author of this article Chris Coe does not own shares in CLX. The editor Claude Walker does own shares in CLX. Neither will trade CLX shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).
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