Invest in parcels expert DX Group if you want to make a packet

Every year, about four billion parcels are delivered around the UK. Turbocharged during the pandemic, the market continues to thrive, with businesses and individuals spending more than £10 billion annually to have goods sent direct to their door.

Most packages are relatively small and simple – food, frocks and fripperies. But many items are trickier to handle – bulky stuff such as tyres or lengths of piping, heavy household wares including sofas and dishwashers, or items requiring extra security, such as jewellery, medicine or confidential papers.

That is where DX Group comes into its own. The company was founded in the 1970s as a courier with an edge, delivering papers to lawyers and court houses before 9am each day and collecting documents after 5 in the afternoon. Business was brisk and the company grew at pace – until email became part of commercial life and volumes started to dwindle.

The firm tried to pick up the slack by moving into new areas, particularly the transport of unwieldy goods, but problems came thick and fast and, by 2017, DX was on the verge of collapse.

New management were parachuted in, a turnaround ensued and, by 2020, DX was profitable and making progress.

But the group soon hit another bump in the road, when rival Tufnells mounted a corporate espionage case against DX, alleging that staff had conspired to secure confidential information from their arch-rival.

The case was finally settled in early June this year just a week before Tufnells went into administration.

Details were never disclosed, but the amounts involved are understood to be minor, involving very few employees.

Nonetheless, the case cast a long shadow over DX. Its accounts were delayed, shares were suspended for months and most members of the board, including the chairman and chief executive, left the business. Today however, prospects are robust and the shares, at 32p, should go far.

New boss Paul Ibbetson is a plain-speaking Yorkshireman, who has spent more than 30 years in the delivery industry and has a history of turning round troubled businesses. Recruited to DX in 2017, he helped orchestrate the firm’s recovery, was not involved in the espionage saga and, in January this year, was recruited to the top job.

Early signs under his leadership are encouraging. The group’s financial year ends on July 1 and a trading update last week showed good progress, with revenues expected to be up 10 per cent on the previous year at £470 million and a 40 per cent uplift in cash to £38 million.

The spy story, grisly as it was, had little impact on the business itself, which has gained a reputation for efficiency and service, qualities that Ibbetson considers fundamental to future success. Crucially too, Ibbetson has moved swiftly to capitalise on Tufnell’s unfortunate demise, picking up 15 sites from the business, which will now be incorporated into the DX estate. The move should accelerate growth across the firm.

Delivering unwieldy parcels is a specialised field. Tufnells had a substantial share of the market and DX is picking up the slack, with demand for its services soaring some 25 per cent in recent weeks.

Brokers expect a 31 per cent increase in profits to £26.5 million for the year just ended, with further strong growth coming through in 2024 and beyond.

After a multi-year hiatus, DX has also reintroduced dividends, with 1.5p pencilled in for 2023, rising to 1.7p next year and 2p for 2025.

DX retains its specialised courier business too and a flourishing logistics business, helping a host of retailers, including Ikea to deliver products.

Traded on: AIM Ticker: DX Contact: dxdelivery.com or 0333 241 1624

Midas verdict: DX was once synonymous with legal deliveries, so much so that lawyers still talk about ‘DXing’ their papers. The firm has had a volatile few years, but the outlook is upbeat. Ibbetson knows what he is doing, Tufnells’ collapse has fuelled demand for DX deliveries and, at 32p, the shares are undervalued, while the dividend adds further spice. Buy.