Clasquin $EPA:ALCLA, a French microcap in the attractive freight forwarding industry

Clasquin is an interesting French microcap growing nicely in the attractive freight forwarding industry

All figures in this article are in euros

The article constitutes my personal views and is for entertainment purposes only. This is not an investment advice. Please refer to the disclaimer at the end of this article for more details.

The Freight Forwarding Business

Clasquin is operating in the global freight forwarding industry. It is a pure play asset lite freight forwarding company. Clasquin has only 2.31 million shares outstanding and we havent seen any dilution since the IPO in 2006. The founder owns 41.4% of the shares. This is a microcap with a total market value of 180 million and an enterprise value of 159 million (net cash of 21 million) - based on 2022 year end results before the 2023 acquisition of Timar.

I first got introduced in this attractive asset lite industry when I first invested in Expeditor International in the 2000s. The industry consist of the coordination and shipment of goods from one location to another via single or multiple carriers via air, sea, rail, or highway. Freight forwarding companies typically do not own hard assets like boats or airplanes. Freight forwarding principles are based on the efficient and cost-effective transfer of goods that are kept in good condition throughout their journey. It is all about developing a relationship of Trust with its customers that the goods will be delivered in time and in good shape.

Clasquin’s gross profit is split among these 3 major components based on 2022 numbers:

Maritime freight forwarding: 56.8%

Air freight forwarding: 28.1%

Road freight forwarding: 10.5%

The company is still very French. 48.9% of gross profit originates from France and 50% of the trades is between Asia and Europe. Clasquin is actively focusing on growing the Europe - Africa trading routes. The Europe - Africa trading routes are growing faster and have less competition. Clasquin has made several acquisitions (refer to the acquisitions section) to boost this segment.

Clasquin has developed niches in the Art and Shows industry. It also very present in high value items in the Fashion, Cosmetics, luxury and Fine Arts as well as Food, Wine and Spirits.

Industry Peers

The top 10 global freight forwarding companies are the following. Not all the companies in the list are asset lite pure play.

1. DHL (not a pure play, owns trucks, plane)

2. Kuehne + Nagel International AG (mostly logistics but not pure play: owns warehouses and distribution)

3. DB Schenker (part of German railway Deutshe Bahn)

4. DSV (asset lite pure play except trucks)

5. Sinotrans (China logistics arm of CMG)

6. Expeditors International (pure play)

7. Nippon Express Co. Ltd

8. CEVA Logistics

9. UPS Supply Chain Solutions (not a pure play)

10. Kerry Logistics

11. Bollore Logistics (bought by CMA in 2023)

Pure plays asset lite companies trading in the stock market are Kuehne + Nagel, DSV, and Expeditor International.

Clasquin is a very small player in this industry, positioned in strategic niches and focusing on key trading routes. It probably provides superior services to customers in terms of flexibility, personalized touch, addressing specific niches to compensate for the lack of scale.

The growth story - a true hidden French Champion

The company started in 1983 with only 1 office purchased by the founder Yves Revol, in Lyon, France. The main thrust in the 80s to mid90s was to grow the southeast Asia - France air freight trading routes. In early 90s, the company started to develop the maritime freight forwarding business. The maritime business is now the largest contributor. In 1995, it open up its first office in North America. North America represents 23% of trading volume (Europe-NA + Asia-NA). It also made some acquisitions to develop the North American trading routes further but most of the growth is organic.

In recent years, the company is growing its road freight forwarding business especially between Europe and Africa.

Since revenue fluctuates greatly with shipping rates, a better measure of the company growth is the gross profit. The gross profit is what it charges customers to handle the logistics on top of the freight charges.

We can observe that Clasquin has grown gross profit steadily, mostly organically by opening new routes and new offices. Since 2005, the CAGR is 11.6%. The last 2 years were exceptional, so if we exclude the last 3 years, the CAGR from 2005 to 2019 is 9.4%. I think this is more inline with normal expectation of future growth.

The air freight (more mature) in million euros has grown steadily but at a slower growth.

The maritime freight in million euros component has seen very strong growth and overtook the air freight in terms of contribution in 2010.

As we will discuss in the next section, 2021 and 2022 were exceptional years for the maritime business.

The number of 20ft containers has risen steadily over the years.

The Road forwarding (brokerage) was almost flat in the 2000s and then with the renewed focus on the Europe - Africa trade, gross profit has increased significantly in the recent years. It is expected to grow even further over the next few years based on the recent acquisitions in Africa.

In terms of net profit, Clasquin growth was actually endemic in the first 10 years after the IPO. It was operating almost as a startup, funneling most of the profits into growth, opening new offices. It probably lacked scaled to cover the G&A and new office costs.

Although the company net earnings was always positive, it always struggled to balance growth and the cost of developing new trading routes. New trading routes are expansive as you have to hire people in new offices without the steady revenue that you will eventually generate after the first few years.

As we can observe below, the net profit margin (over gross profit) have actually gone down from 10-12% range in early 2006-2008 to a low 5% in 2016-2018. Since then, the margin have gone up steadily. If we can stabilize at around 10-14%, Clasquin will make money for its shareholders and this is will be a very good investment.

The 4 brokerage firms are unanimous that Clasquin will not return to the anemic net profit margin once the 2021-2022 boom is gone. But this is THE RISK for this company.

2021 and 2022 - the booming years

The challenges faced on global shipments during the COVID crisis was very beneficial to the global freight forwarding industry. During those years (especially in 2021 and 2022) gross profit per shipment has more or less doubled.

Thanks to these prosperous years, Clasquin is now debt free and has more than 22m in net cash (once LT debt is subtracted). It also made several attractive acquisitions without any dilution.

Shareholders

I view the current distribution of ownership has very positive. The founder and current chairman and President is the largest shareholder with 41.4%. Employees owns 13.6% which is very unique and positive. The company has established strong incentives to grow ownership to employees. The float is at a healthy 44.4%.

Cyclicality

The gross profit per shipment fluctates significantly every quarter. The following table shows the quarterly pricing for the air freight.

The same for maritime:

The same volatility between 2008 and 2017 is observed. The following shows the relative total shipment costs based on 2008 price for maritime shipment. This is not the gross profit.

The air freight pricing is more stable.

Acquisitions

Clasquin has made strategic bolt-on acquisitions over the years:

The following table shows the details of the acquisitions made since 2008:

The largest acquisition made was done early this year. It bought 70% of Timar, based in Maroc. More on its impact for 2023 in Part2.

Current Valuation

If you look at the 12 months trailing earnings (1H 2023 is not out yet), Clasquin earned 9.44 per share and it trades at a PE of 8.2 at today’s price of 78$.

(Full disclosure - I started to buy a small position of Clasquin in May once I stumbled upon the stock. I also got a fat 6.50$ of dividends in June. Clasquin is a below 1% position. Clasquin can be very generous on dividends.

Clasquin is actually followed by a few brokerage firms in France. BNP Paris is projecting a 2023 EPS of 5.00 euro. Oddo is more optimistic and is estimating a EPS of 6.25 euro. As such, using this range, Clasquin is currently trading at a PE of 12.5 to 15.5 of projected earnings of 2023. 2024 is supposed to be better than 2023.

Clasquin is a high quality growth company and paying 12x-15x projected earnings can often be very lucrative over a 5 years horizon.

The fast forwarding business, especially pure play like Clasquin owns no hard assets with the exception of warehouses in strategic locations. It is all about developing trust with customers that goods will be delivered in time and in good state. It is all about relationship and know how logistics. As such, the majority of profits goes back to shareholders through dividends or acquisitions or geographic expansion.

Pros and Cons

Pros:

1. Trades as a discount to large players - will discuss this in Part2

2. Smaller more potential to grow geographically including the Africa trading routes

3. Can do small bolt-on acquisitions of local SMEs - too small for large cap

4. Addresses niches with pricing power (high value items)

5. Net profit should grow with scale faster than gross profit - G&A overhead, new offices startup costs.

6. Shareholder friendly (large payout dividends) and founder with 40%+ ownership

Cons:

1. Lack of scale can impact net margin more significantly than larger player in downturn

2. Not strong in North America, the world largest market.

3. Risk of going to anemic net margin (5%) after the 2021-2022 booming years

4. Not present in many countries (e.g. Australia, South America except Chili).

Part2 and Q1 results

I am planning to wrap-up on Clasquin, looking more closely on the 2023-2024 projections as well as comparison with the larger pure play peers in terms of growth, valuation etc.. (Kuehne + Nagel, DSV, and Expeditors International). Assessing how much CMA-CGM paid in terms of gross profit ratio or EBITDA ratio for the 5.5B acquisition of Bolloré Logistics earlier this year should be interesting. Feel free to raise questions which may be addressed in Part2.

Here is Q1 preliminary results, this will be discussed further in our 2023 analysis.

Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested