DX: "Contrarian" View28 Sep 2021 12:22
"Contrarian" view on why DX is misunderstood at the moment by the market:
•DX is a compelling contrarian pick – because the stock is misunderstood, it has underperformed compared to its peers, creating a very attractive entry point for contrarian investors. Liberum and finnCap have price targets of 50p and 57p respectively representing 65-90% upside from today
•Despite negative sector headlines around driver shortages and other Brexit- and covid-related supply chain disruptions, DX is well positioned to continue to grow margins and profit, particularly in its IDW, B2B freight business, in which it is a dominant player gaining market share
•Driver shortages are not materially impacting DX’s ability to deliver due to its long-term focus on attracting, training, and retaining drivers, and the specialist markets it operates in
•As a result, the unique pool of DX drivers serves to further cement its leadership position in the IDW market during this time of driver shortages and positions it to further capitalise on higher volumes
•As a read across from Royal Mail results, the trend for higher UK parcel deliveries reflects a permanent shift towards more online shopping post pandemic and domestic deliveries remain up around a third on pre-COVID levels. Higher costs can be absorbed and H2 margins are expected to be higher than H1
•finnCap noted this positive read across to DX from Royal Mail: “DX is able to maintain medium term growth through margin expansion and market share gains despite tougher labour market and inflationary pressures for competitors”
•Larger groups like DX are clearly better placed to take advantage of higher volumes and absorb the well published labour challenges in the market today, and in the case of DX, outperform given its deep pool of employed specialist drivers
All views expressed are my own. I am an Analyst at Gatemore Capital Management. Gatemore, its affiliates and clients may, as at the date of publication, have a long or short position in the securities covered in this document. We intend to continue trading in these securities and may at any time be long, short or neutral these securities (or any other securities of the same issuer) or any related securities, regardless of the position or views expressed in this document. Gatemore currently controls a 20.15% stake in DX Group.