DX Systems deserves its red-letter day
DX SYSTEMS enjoyed its first day as an independent company yesterday. On its demerger from Hays, the shares started trading at 265p – higher than many had forecast – and had posted a healthy premium by the end of the session when they stood at 287 3/4 p.
On first sight, DX looks a dull postal business with current growth of just 2pc. However, it remains the only private postage business with a mail licence that has no reliance on the delivery infrastructure of the Royal Mail.
Unlike rivals, which depend on the old mail monopoly for the “final mile” delivery, DX handles that itself, giving it an excellent position in an industry which is being slowly deregulated.
DX handles over a million items every day, focusing on three main business areas: document exchange (hence the name), parcels and mail.
The document exchange operation accounts for the majority of revenues. The business is subscription based and the group claims a renewal rate of more than 90pc.
The parcel division is essentially a courier business, focused on time-sensitive deliveries in the insurance, optical and travel industries. The fledgling mail business takes advantage of the deregulation of the UK mail industry to provide business-to-business first class post.
The group’s customer base and existing network leaves it well positioned, while there are significant barriers to entry for rivals without its nationwide network.
DX reckons it can increase the amount of mail it handles to 400m items a year without further capex. The trouble is, Royal Mail has such a dominant monopoly.
The painfully slow deregulation process means the near-term growth potential is limited, although the company has signalled a chunky dividend policy which should offer some support to the shares. It has few direct competitors, making it difficult to value, but on 13 times next year’s earnings, the shares look like one for long-term investors only.
