the public warehousing company (agility) - investment update

Published October 22nd, 2007 - 12:20 GMT

the public warehousing company (agility) - investment update
Global Investment House- Kuwait-The Public Warehousing Company (Agility)- Results Update - October 2007- The Public Warehousing Company (Agility) has reported strong growth in revenue in the last few years. The total revenue of the company in 2006 reached KD1,013.1mn. Logistics services revenue grew by 53.6% in 2006 to reach KD318.2mn, up from KD207.2mn in 2005. Freight and project forwarding revenue grew by 219.9% in 2006 to reach KD646.6mn, up from KD202.1mn in 2005.
The value of Agility’s shares derived from the weighted average of the DCF and peer comparison methods is KD2.205 per share. The stock currently trades at KD1.720 on the KSE, which implies that the weighted average value of Agility’s shares is at a premium of 28.2% to the share’s current market price. At the current price, Agility’s shares have forward P/E multiples of 9.5x and 8.5x the estimated 2007 and 2008 earnings respectively. We, therefore, maintain our 'BUY' recommendation on the Agility stock at its prevailing price levels.
Financial Performance
Agility’s operational revenues grew to KD1,013.1mn for the year ended December 2006, a significant jump of 123.5% from KD453.2mn in the previous year. Revenues from logistics services and freight forwarding continued to be the major contributor, with a combined share of more than 95% in the total operational revenues during the year up from 90.3% in 2005. Logistics services revenue grew by 53.6% in 2006 to reach KD318.2mn, up from KD207.2mn in 2005. Freight and project forwarding revenue grew by 219.9% in 2006 to reach KD646.6mn, up from KD202.1mn in 2005.
The revenue growth in these segments was mainly boosted by the acquisitions made by the company in 2005 namely Singapore-based Trans-Link Group, and US-based Transoceanic Shipping Co. and GeoLogistics Corporation. As the companies were acquired in 2005, their contributions for the full year of 2006 were reflected in the financials of Agility. Agility also continued to acquire new companies in 2006. The full impact of the new acquisitions made in 2006 will be reflected in 2007.
The net profit of the company went up by 17.4% to KD166.5mn in 2006 from KD141.8mn in 2005. In line with decline in operating margin, the net profit margin also declined from 31.3% in 2005 to 16.4% in 2006. The profitability ratios declined significantly during the year with the increase in low-margin freight forwarding business. The return on average assets declined to 14.1% in 2006 from 20.0% in 2005. Simultaneously, the return on average equity declined to 27.0% in 2006 from 37.8% in 2005.
The asset base of the company continued to grow at a faster rate along with the growth of the business. The total asset base of the company grew 26.9% to reach KD1.32bn at the end of 2006, up from KD1.04bn in 2005.  The current assets rose by 37.8% during the year with maximum growth occurring in other current assets segment, which grew by 94.1%. The average receivable-days declined to 88 days in 2006, from 113 days in 2005, while the average inventory-days declined significantly to 44 days in 2006, from 151 days in 2005.
Starting from 2007, Agility has changed the way it reports revenue from logistics services. The company had revenues of KD799.2mn in the first half of 2007, up 32.5% year-on-year (y-o-y). The growth was mainly due to acquisitions made by the company in 2006 in the area of logistics and freight forwarding. Revenues from logistics and freight forwarding increased by 33.0% y-o-y to reach KD764.9mn in 1H-2007. The share of this segment in total revenues was more than 95% in 1H-2007, almost at the same level as the previous year.
The gross margin for the period was 35.7% as against 37.2% in the same period previous year. Higher operating expenses pulled down the operating margin for the period to 10.3%, down from 14.4% in same period previous year. The net profit for the period was KD80.3mn, down 2.5% y-o-y from KD82.4mn in 1H-2006. Consequently the net margin for the period was lower at 10.0%, down from 13.7% in same period previous year.
Agility aims to be among the top global companies in the segments in which it operates. In addition to growing in its existing markets, the company is aiming at increasing its presence in fast-growing economies in Eastern Europe and Asia, mainly China and India. It also wants to increasingly focus on Africa in order to drive the growth. Going forward, the management has indicated that they will focus more on the organic growth. However they will still continue to acquire companies, mainly in niche segments, if the opportunity is there.  We believe that the company is on its way to become one of the leading integrated logistics company. 
We expect Agility to benefit from the continuing economic growth in the GCC region. With higher prevailing oil prices, the GCC countries continue to achieve record budget surpluses which are resulting in heavy investments in the region. This in turn has resulted in high growth in segments like project forwarding. With its expertise in this segment, Agility is expected to benefit from the growth. Agility has also partnered with leading MNCs with regard to their expansion  plans in the GCC region.
After gaining the increased scale of operation, now the company is aiming at consolidation. It wants to optimize the returns on the existing assets.  We believe that is a step in the right direction. After acquiring companies in diverse parts of the World, Agility needs to bring them to a common platform. The company can benefit immensely from cross-utilization of the expertise of each of the acquisitions. The management has indicated that the integration of these newly-acquired companies is on track.

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