Eddie Stobart Logistics Initiation of Coverage

Eddie Stobart Logistics Initiation of coverage

Life in the fast lane Industrial support services

19 June 2017 Through a mixture of winning new outsourced logistics contracts, exposure to the substantially higher-growth e-commerce subsector and Price 158.5p solid underlying market growth, we forecast that Eddie Stobart Logistics Market cap £567m (ESL) will grow EBIT at 15.3% CAGR over the next three years. Since being taken private in 2014, ESL has brought in new management and grown Estimated net debt (£m) at 30 November 79.1 earnings significantly. Listing on AIM in April 2017 enabled the company to 2017

pay down debt, make a small acquisition and set the business up for the Shares in issue 357.9m next phase of expansion. Despite its sector-leading operations and Free float 72.2% outlook, ESL trades at a discount to its global peers. We believe it should Code ESL trade at least in line and our fundamentals-based valuation per share of

200p offers equity holders upside of 26%. Primary exchange AIM Secondary exchange N/A

Revenue PBT* EPS* DPS P/E Yield Year end (£m) (£m) (p) (p) (x) (%) Share price performance 11/15 496.5 21.0 5.4 0.0 29.4 N/A 11/16 570.2 26.1 6.9 0.0 23.0 N/A 11/17e 648.2 41.4 10.9 5.5 14.5 3.5 11/18e 741.9 50.8 12.3 6.2 12.9 3.9 Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Growing e-commerce and profitability drive returns

ESL’s scale, technology and network drive operating margins ahead of its closest listed UK and European peers. Operating profit growth will be driven by the top line, % 1m 3m 12m however, with a mixture of market growth, the contribution of substantially higher Abs (2.2) N/A N/A growth from e-commerce, plus, most significantly, winning new outsourced logistics Rel (local) (2.7) N/A N/A contracts all combining to drive 13.6% three-year underlying revenue growth. ESL’s 52-week high/low 163.5p 158.5p superior operations will, we believe, facilitate a 3.5% dividend yield starting this year, which is an attractive differentiator in a sector that yields 1.1%. Business description

Eddie Stobart Logistics is a market leader in end- Bolt-on acquisitions look set to continue to-end multi-modal transport and logistics. Operations are primarily focused in the UK with ESL completed the £45m strategic acquisition of iForce in April 2017. The UK some activities in mainland Europe. Key customer transport and logistics sector remains very fragmented with hundreds of potential segments include retail, consumer, industrials and, targets of a similar scale to iForce. ESL’s balance sheet capacity plus market- increasingly, e-commerce. leading fleet utilisation, technology and management means the company can Next events make and extract significant synergies from bolt-on acquisitions, which will further Q2 results July 2017 drive shareholder returns. Analysts Valuation: Underpriced versus growth prospects Jamie Aitkenhead +44 (0)20 3077 5746 Trading on an FY18e EV/EBIT of 11.5x and P/E of 12.9x, ESL trades below a Roger Johnston +44 (0)20 3077 5722 global average of its peers (14.2x and 19.8x, respectively). However, ESL’s [email protected]

superior profitability (7.4% EBIT margins versus a sector average of 5.0%) and Edison profile page growth profile (EBIT growth of 15% CAGR versus low single-digit percentages in the sector) deserve a premium to its peers. This view is reinforced by our Eddie Stobart Logistics is a fundamental valuation of 200p per share. The 26% upside to current trading levels research client of Edison is derived through three valuation methodologies: DCF, peer comparison and an Investment Research Limited economic value added (EVA) analysis.

Investment summary

Change in focus drives stellar earnings growth ESL is among the largest UK transportation and logistics market participants, albeit with only around 1% of the fragmented £70bn market. Management estimates that between 45% and 80% of logistics and supply chain services are carried out in-house, which accounts for ESL’s relatively small market share despite being in the top five contractors by revenue. Road transportation of goods in trucks still accounts for the bulk of revenues. The group has refocused to growth areas such as e-commerce and changed its model to be a provider of consulting-led outsourced logistics management. ESL is differentiated by its above-average profitability and growth pipeline. It listed on AIM on 25 April 2017.

Valuation: Fair value per share of 200p and 26% upside ESL currently trades at a discount to its closest peers. Its FY18e EV/EBIT ratio of 11.5x and price to earnings ratio of 12.9x compares to sector averages of 14.2x and 19.8x, respectively. Given ESL’s sector-leading EBIT (three-year CAGR 15.3%) and EPS growth (three-year CAGR 27%) we believe the stock should trade at least in line with its global peers.

Our fundamental analysis implies a fair value per share of 200p, which offers 26% upside to the current price of 158.5p. We arrive at our fair value per share by taking an average of three valuation methodologies. Our DCF (WACC 7.4%, terminal growth 1%) implies a value of 190p. We also use a peer comparison adjusted for superior growth, which gives a value of 200p. We also make use of an EVA analysis, which gives a fair value of 207p per share. A simple average of the three gives our fundamental fair value per share of 200p.

Financials

 ESL exhibits significant earnings growth. Q117 delivered: results showed 18% revenue and 20% EBITDA growth, confirming continuing strong growth and providing a reassuring outlook.

 Balance sheet: we forecast net debt to one-year forward EBITDA to drop from 3.4x at the end of November 2016 (£166m) to 1.4x at the end of November 2017 (£79m), leaving room for further acquisitions.

Sensitivities: Risks well handled by management ESL’s management has been proactive in addressing specific operating risks. Fuel costs are passed through in all contracts and the cost structure is set up to be flexible. However, a couple of operating and technical risks should be noted:

 Macro issues: although ESL enjoys the ability to quickly reduce its cost base in response to any economic downturn, thus conserving margins, it should be mentioned that several important client groups, such as Manufacturing, Industrial and Bulk (MIB), which together accounted for 81% of FY16 revenues, are sensitive to GDP trends.

 Technical issues: with over 50% of the stock held by the top five shareholders, ESL will suffer from a perceived lack of liquidity. Furthermore, there is the possibility that one or more of the larger shareholders could wish to sell down, potentially creating an overhang.

 Regulatory issues: operating a fleet of over 2,000 trucks, many of which run on diesel (although ESL has markedly increased diesel efficiency), exposes the group to further taxes on road users or emissions. It is likely that ESL would be able to pass through such costs and no major explicit regulatory change is expected soon.

Eddie Stobart Logistics | 19 June 2017 2

 Financial issues: ESL is exposed to cyclical sectors; it could lose as well as win contracts (we believe some of its contracts are meaningful at group level). It may incur a cash cost for the use of the Eddie Stobart brand from 2020 or it might have to buy a perpetual right to do so in 2018.

Company description: The building blocks of growth

ESL continues to evolve from its heritage as primarily a road-based haulier of retail and consumer goods towards providing integrated consulting-led logistics services in higher growth markets such as e-commerce and MIB products. It has 5,500 employees, 2,200 vehicles, 3,800 trailers and four rail-connected distribution centres, which combine into the most profitable UK-based logistics companies. It listed on the AIM market in April 2017, having been in private hands since 2014.

Exhibit 1: ESL’s UK and European distribution network

Source: Eddie Stobart Logistics data Several factors differentiate ESL; uppermost among them are the company’s highly competitive offerings in price and service. The Eddie Stobart brand (held by licence from Stobart Group Brands, for which ESL may start paying a royalty fee or purchase a perpetual right) is very well-known to UK consumers. Its distribution network across the UK (see Exhibit 1) brings network benefits that translate into low empty-leg journeys and therefore higher fleet utilisation and sector-leading profitability. Investment in recent years in technology means ESL has a modern IT platform, which brings the capabilities in inventory management, real-time tracking and route optimisation sought by complex customers. Management will continue to invest further in technology and in higher growth end-markets, such as e-commerce and building supplies, to enhance the growth prospects of the company in order to sustain above-average industry levels.

The recently installed management team with the benefit of the new capital raised at listing have the ambition and platform to grow the business through both organic and inorganic means. CEO Alex Laffey brings with him decades of experience and contacts in UK logistics. Management is applying margin discipline more rigorously and using its reputation and sector know-how to bid for outsourced logistics contracts as they come up.

Eddie Stobart Logistics | 19 June 2017 3

ESL has longstanding relationships with the largest customers in UK logistics. 75% of its FY16 revenue came from 25 clients and more than half of its relationships have been in place for longer than 10 years. Several aspects of the ESL business proposition are attractive to customers, in addition to price competitiveness. For instance, ESL’s contracts are often ‘closed book’, which means that, with the exception of a fuel pass-through, ESL takes on utilisation risk from its customers in return for higher rewards.

End-market exposure: e-commerce and MIB fuelling the engine ESL’s most important end-markets are Retail (27% of FY16 revenues), Consumer (30%), MIB (24%) and e-commerce (9%); however, the e-commerce proportion will increase to more than 20% in FY18e as the iForce acquisition contributes part and then full-year revenues. ESL’s three largest end-markets – Retail, Consumer and MIB – have historically grown in line with GDP while e- commerce is growing by double-digit percentages.

UK consumer demand has remained resilient even after the EU referendum result. The key industry trend in recent years has been the switch in consumer demand to non-store retailing at the expense of in-store retailing. Euromonitor estimates that non-store (online) still only accounts for 14.7% of the market. We forecast this trend will continue with traditional in-store Retail and Consumer sectors growing at a ‘GDP plus’ rate of 2.5% and online sales growing well above. Integrated logistics providers are set to benefit from the changing market due to their warehousing skills and assets, which are attractive to online retailers. Indeed, post iForce, ESL has the second largest e- commerce business in the UK.

MIB sectors have displayed a far more diverse set of growth patterns in recent years. Bulk (often rail) shipments of coal and steel have declined significantly, while the construction sector has grown. ESL continues to target more construction customers to exploit this continuing trend. Recognising the diverse range of industries served by ESL, we forecast a ‘GDP plus’ rate of organic growth of 2.5%. Importantly, ESL aspires to capitalise on the outdated single operator model, which prevails in MIB. Integrated logistics offerings, common in the retail and consumer segments, are yet to fully penetrate MIB clients. Increased market share at the expense of smaller independent names is a key attraction for ESL’s management.

The e-commerce business is expanding both organically and by acquisition, and is becoming an important part of ESL’s business and a significant growth engine. We forecast a 25% growth rate in ESL’s e-commerce businesses over the coming years. Taking into account the iForce acquisition and the significantly higher rate of growth in this market, we forecast e-commerce will account for at least 20% going forward.

Exhibit 2: ESL revenue split by end-market exposure

120% 10.0%

100%

market 8.0% - 80% 6.0% 60% 4.0% 40%

20% 2.0%

0% 0.0%

8M14 2015 2016 Historical revenue split by endby split revenue Historical Consumer Retail MIB Adhoc Sector E-commerce EBITDA margin (%) EBIT margin (%) Source: Eddie Stobart Logistics data, Edison Investment Research

Eddie Stobart Logistics | 19 June 2017 4

Exhibit 3: ESL’s EBIT margins ahead of the pack – last reported FY data

8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0%

ESL vs peers EBIT margin (%) marginEBIT peers vs ESL 1.0% 0.0% ESL Wincanton Clipper ID Logistics Kuehne & Panalpina Deutsche Royal Mail Average Nagel Post (excl ESL)

Source: Eddie Stobart Logistics data, Edison Investment Research ESL’s network model, investment in technology, high on-time delivery record and scale contribute to its highly efficient operations. The result is an FY16 EBIT margin of 7.4%, which is around 250 basis points ahead of the average of its closest peers. In a highly competitive and mature market, this is a considerable achievement. With 47,000 deliveries per week enabled by a network-based approach that ensures fewer empty leg journeys and IT systems enabling route optimisation, ESL generates vehicle utilisation well above the industry average, near-perfect scoring on on-time deliveries (see Exhibits 5 and 6) and a strengthening brand reputation. Exhibit 4 shows the benefits of having exposure to complementary sectors. For instance, when MIB deliveries stop at 17:00, the same curtain-sided trucks can be used for e-commerce customers in the evening.

Management has stated it will not actively seek to expand EBIT margins much from current levels. Rather it will invest in headcount and other costs to better service customers.

Exhibit 4: Complementary sectors bring network effects

Source: Eddie Stobart Logistics data Finally, Alex Laffey’s focus on margin discipline was illustrated well with the June 2016 cessation of the Tesco Ireland contract and also its exit from the Britvic contract.

Eddie Stobart Logistics | 19 June 2017 5

Exhibit 5: ESL vs peer vehicle utilisation (2016) Exhibit 6: ESL’s on-time deliveries (2016)

100.0% 99.3% 99.2% 80.0% 99.2% 60.0% 99.1% 40.0% 99.1%

99.0% % deliveries on timeon%deliveries

% vehicle utilisation vehicle % 20.0% 99.0% 0.0% 98.9% ESL Industry average 2014 2015 2016

Source: Eddie Stobart Logistics data Source: Eddie Stobart Logistics data

Operating flexibility in place for downside protection Several of ESL’s key customer segments – such as MIB (24% of FY16 revenues) – are cyclical. The company has built flexibility into its cost structure to absorb reductions in revenues from economic contractions. For example, ESL leases its vehicles from Volvo and Scania. The company can adjust its fleet size downwards by up to 300 trucks out of a total of 2,200 as part of the lease agreement. Also, with approximately one-third of its leases up for renewal annually, it can reduce its fleet size quickly to absorb the impact of softening end-markets. Taken together with ESL’s use of subcontractors on short-term contracts, agency drivers who account for up to 25% of all drivers and the company’s ability to manage headcount flexibly, there are several mechanisms in place where management can rapidly adjust the cost base to offset any future decline in revenues.

Long-term relationships account for the bulk of revenues The bulk of ESL’s revenues come from long-term contracts. CEO Alex Laffey, previously in charge of in-house logistics at Tesco, is a well-established and respected name in the sector. Management stresses that relationships and reputation are very important in the sector and the fact that 25% of ESL’s relationships, many with blue chip customers, are over 10 years old illustrates the company’s perceived quality as a counterparty. With 67% of ESL’s FY16 revenue from existing contracts, such arrangements demonstrate stability and add visibility to group cash flows. Added to this, the company has a rolling pipeline of £450-500m of new business split between existing and new clients. Note: ‘evergreen’ contracts are rolling annual renewals.

Exhibit 7: ESL FY16 revenue split by contract type Exhibit 8: ESL FY16 revenue split by contract duration

Non- 0-2 years contracted 5% 2-4 years 13% 11%

4-6 years Evergreen 11% 20%

6-8 years 10+ years 4% 60% Contracted 67% 8-10 years 9%

Source: Eddie Stobart Logistics data Source: Eddie Stobart Logistics data

Eddie Stobart Logistics | 19 June 2017 6

M&A opportunities while balance sheet headroom remains We forecast ESL’s year-end FY17e net debt will be £79.1m, equivalent to 1.4x EBITDA with £130m in proceeds from the April 2017 IPO, enabling the company to pay down some debt and to complete the April 2017 £45m acquisition of iForce, an e-commerce company. We fully expect management to continue with its policy of making selective bolt-on acquisitions as long as the company remains below its self-imposed net debt to LTM EBITDA ceiling of 2x. The UK transportation and logistics market is very fragmented (ESL’s market share in 2015 was under 1% of the total market value of £70.3bn) so there is no shortage of potential small targets around. iForce was acquired for £45m. Based on £55m of revenues and 6.5% operating margins (company guides to above 6%), ESL paid a reasonable multiple of around 12.5x trailing EBIT for iForce, which is well below market multiples for similar companies such as Clipper, which trades at more than 20x forward EV/EBIT. When high revenue growth is taken into account, ESL probably paid well below 12.5x forward-looking EV/EBIT. iForce, once on ESL’s operating platform, will gain access to ESL’s customers and operating capabilities, which will immediately enhance the performance of the target and produce synergies.

Operations and forecasts

ESL reports by operating activity – Road Transport, Contract Logistics (CL) and Warehousing, EU Transport and Other. We briefly discuss each operating division in the following section.

Exhibit 9: ESL FY17e revenue split by segment Exhibit 10: ESL FY17e EBITDA split by segment

CL & EU Transport Other Divisions, central and eliminations 5% 8% Warehousing EU Transport 11% 7%

CL & Warehousing 17%

Road Road Transport Transport 68% 84%

Source: Edison Investment Research Source: Edison Investment Research

Q117 strong growth reflects market growth and contract wins In the three months to February, ESL grew quarter-on-quarter revenue and EBIT by 18% and 20%, respectively. Management commented that the high growth was due to a mixture of contract wins in 2016 and organic growth, and that it continues to invest in existing customers and pipeline. It is worth noting that Q1 is normally the slowest month as it captures January and February, which see a drop-off in demand following Christmas.

We forecast ESL will grow revenues at a CAGR of 13.6% over the next three years from £570m in FY16 to £836m in FY19e. As Exhibit 14 shows, organic growth increases as iForce gives the company more exposure to the high growth e-commerce segment: e-commerce accounted for 9% of FY16 revenues, which increases to over 20% pro-forma with iForce. The fact that ESL is one of only a handful of logistics operators that can undertake complex, nationwide logistics outsourcing contracts, and that, in addition, the CEO used to work for Tesco, convinces us the company is well placed to win new contracts in the coming years. With large retail, consumer and industrial customers continually inviting tenders for £20-40m per year contracts (ESL, significantly, recently won a £28m per year contract in the aggregates space), it only takes one or two such new

Eddie Stobart Logistics | 19 June 2017 7

contracts per year to increase revenues by mid- to high-single-digit percentages as per our forecasts. The final revenue growth driver is M&A. We only explicitly forecast the iForce acquisition (in for part of FY17e and all of FY18e) and Stobart Ireland disposal, which are both complete.

We forecast ESL’s e-commerce end-market will grow at 25% year-on-year while the other divisions – Retail, Consumer, MIB, Other – will grow at a far lower 2.5%. We take on board management guidance where it expects that the largest reporting segment, Road Transport, will grow by a higher rate than the other divisions as it has greater e-commerce exposure.

Road Transport: MIB and e-commerce the engines of growth Road Transport (68% of FY16 revenues) is where the bulk of the MIB and e-commerce growth will come through. There will be a one-off effect in FY17e from the disposal of the Irish operations, which contributed £21m of FY16 revenues. Excluding this, we expect underlying three-year EBITDA CAGR of 9.1%. We expect margins to stay flat over our forecast period in line with historical reported figures.

Exhibit 11: Road Transport EBITDA and margin forecasts

60 13.0%

50 11.0% EBITDA margin, % 40 9.0% 30 7.0%

20 5.0% EBITDA, £m EBITDA, 10 3.0% 0 1.0% 2015 2016 2017e 2018e 2019e

EBITDA Margin

Source: Eddie Stobart Logistics data, Edison Investment Research

iForce: Allocating capital to higher growth markets With 2016 revenues of c £55m and operating margins above 6%, the £45m acquisition (implied EV/EBIT multiple of 12.5x based on 6.5% EBIT margins) of e-commerce specialist iForce early in 2017 offers ESL increased exposure to this high-growth segment. Note that it is unclear whether ESL will account for iForce as a separate reporting segment or split it between Road Transport and CL and Warehousing. For transparency and until we get confirmation from management, in Exhibit 14, we split out the iForce contribution. iForce’s activities complement ESL’s existing logistics operations. It offers an end-to-end service and has sophisticated software in areas such as fulfilment management, carriage management, returns and stock clearance, which fits with ESL’s outsourcing model. The acquisition makes strategic sense for ESL as it gains a foothold in a high- growth market and new software, plus ESL will be able to extract synergies as it brings iForce onto its scale platform.

CL and Warehousing: Stable returns CL and Warehousing (17% of FY16 revenue) tends to be a slower growth business. We therefore forecast this division to report a three-year EBITDA CAGR of 24.1%, partly driven by 7.5% revenue CAGR and partly by our forecast of a margin recovery to 6.0% after FY16, during which ESL expanded its warehousing capacity and therefore saw lower margins as rent payments increased. Management now guides to capacity utilisation having increased enough for margins to recover. Therefore, we expect EBITDA margins to remain around 6.0% across the forecast period.

Eddie Stobart Logistics | 19 June 2017 8

Exhibit 12: CL and Warehousing EBITDA and margin forecasts

8 9.0% 7 8.0%

EBITDA EBITDA margin, % 6 7.0% 5 6.0% 4 5.0% 3 4.0% EBITDA, £m EBITDA, 2 3.0% 1 2.0% 0 1.0% 2015 2016 2017e 2018e 2019e

EBITDA Margin

Source: Eddie Stobart Logistics data, Edison Investment Research

EU Transport: Dipping a toe in Europe Although small, accounting for only 7% of FY16 revenue, we forecast the EU Transport business will grow at a rate in line with the broader group with 7.5% revenue CAGR. We also forecast EBIT margins of 6% for the next three years, in line with the average of the last two years. However, we note EU Transport’s strong margin performance in FY16, and do not expect this level to be sustained; hence our three-year EBITDA CAGR for this business is -5.6%.

Exhibit 13: EU Transport EBITDA and margin forecasts

4 10.0% 3.5 9.0%

EBITDA EBITDA margin, % 3 8.0% 2.5 7.0% 6.0% 2 5.0%

1.5 4.0% EBITDA, £m EBITDA, 1 3.0% 0.5 2.0% 0 1.0% 2015 2016 2017e 2018e 2019e

EBITDA Margin

Source: Eddie Stobart Logistics data, Edison Investment Research

Further growth through bolt-on acquisitions iForce is a good example of what we believe will be an active programme of bolt-on acquisitions for ESL. At the time of listing, management indicated it was assessing three further targets. Taking into account the 2x net debt to last-12-month EBITDA (currently 1.6x) ceiling ESL has set itself in conjunction with its annual free cash generation of c £10m from FY18e, we calculate that ESL has scope to make acquisitions totalling up to c £30m over the next year or two. In a highly fragmented market, there is no shortage of potential targets.

Forecast earnings growth ahead of the industry Pulling together our divisional estimates (see Exhibit 14), we generate our three-year forecast EBIT CAGR of 15.3%, driven by top-line growth rather than operating margin expansion. Despite the fact that industry reports such as the one published by KPMG in March 2017 estimate that transport and logistics as a whole will only grow by an average of 2.5% to 2021, we believe ESL can grow organically at mid- to high-single-digit percentages. We highlight again the £450-500m rolling pipeline of new contracts disclosed by ESL at the IPO. Our underlying three-year revenue growth

Eddie Stobart Logistics | 19 June 2017 9

forecast (excluding one-off effects of the iForce acquisition and the disposal of the Irish operations) is 11.8%. ESL’s superior growth is driven by a mixture of exposure to higher growth market segments such as e-commerce and the likelihood of it winning large-scale (£20-50m per annum) outsourced logistics contracts from large retailers. As an example of the scale of opportunity, a £40m outsourced logistics contract would boost ESL’s revenues by more than 7% alone.

We bring together each of our individual reporting segment revenue forecasts into the group revenue growth forecasts below with growth split between organic, net new business and M&A.

Exhibit 14: Detailed ESL revenue forecasts Revenue £m 2015 2016 2017e 2018e 2019e Comments Road Transport 324.6 388.9 415.4 464.1 515.0 16e/15: 6.8%; 3-year CAGR 9.8% Total y-o-y (%) 19.8% 6.8% 11.7% 11.0% Organic y-o-y (%) 4.5% 4.5% 4.5% 90% traditional at 2.5%, with (ex iForce) e-commerce 10% at 25% Net new business y-o-y (%) 7.7% 7.2% 6.5% One £30m contract per year M&A (%) -5.4% 0.0% 0.0% Ireland (£21m) removed in FY17 Underlying (organic plus new business) (%) 12.2% 11.7% 11.0% CL & Warehousing 87.2 94.5 101.6 109.2 117.4 16e/15: 7.5%; 3-year CAGR 7.5% Total y-o-y (%) 8.4% 7.5% 7.5% 7.5% Organic y-o-y (%) 2.5% 2.5% 2.5% 2.5% organic growth assumption Net new business y-o-y (%) 5.0% 5.0% 5.0% Assume 5% net new business M&A (%) 0.0% 0.0% 0.0% Underlying (organic plus new business) (%) 7.5% 7.5% 7.5% EU Transport 48.0 38.5 41.4 44.5 47.8 16e/15: 7.5%; 3-year CAGR 7.5% Total y-o-y (%) -19.8% 7.5% 7.5% 7.5% Organic y-o-y (%) 2.5% 2.5% 2.5% 2.5% organic growth assumption Net new business y-o-y (%) 5.0% 5.0% 5.0% Assume 5% net new business M&A (%) 0.0% 0.0% 0.0% Underlying (organic plus new business) (%) 7.5% 7.5% 7.5% Other divisions, central and eliminations 36.7 48.2 51.8 55.7 59.9 16e/15: 7.5%; 3-year CAGR 7.5% Total y-o-y (%) 31.3% 7.5% 7.5% 7.5% Organic y-o-y (%) 2.5% 2.5% 2.5% 2.5% organic growth assumption Net new business y-o-y (%) 5.0% 5.0% 5.0% Assume 5% net new business M&A (%) 0.0% 0.0% 0.0% Underlying (organic plus new business) (%) 7.5% 7.5% 7.5% iForce 0.0 0.0 38.0 68.4 95.8 Total y-o-y (%) 80.0% 40.0% Organic y-o-y (%) 30.0% 30.0% 30% organic growth Net new business y-o-y (%) 10.0% 10.0% Assume significant new contracts M&A (%) 40.0% 0.0% Phase in over two years Total 496.5 570.2 648.2 741.9 835.8 16e/15: 13.7%; 3-year CAGR 13.6% Total y-o-y (%) 14.8% 13.7% 14.5% 12.7% Organic y-o-y (%) 3.9% 5.4% 6.3% New business y-o-y (%) 6.9% 6.7% 6.4% M&A (%) 3.0% 2.3% 0.0% Source: Edison Investment Research We forecast ESL’s operating margins will remain around 7.5-7.7% across our forecast period. The company’s margins are well ahead of its nearest competitors (Exhibit 2), which is due to ESL’s scale and efficiency. ESL does take on utilisation risk through its ‘closed book’ contract but there is a fuel cost pass-through in all contracts. Management points out that ESL has weathered economic downturns well in the past and preserved margins, through a mixture of flexibility in its lease agreements, its ability to increase and reduce subcontractors and agency drivers, and the company’s capability to cut costs quickly. Likewise, management would ‘reinvest’ (ie expense more to cap margins) in the business rather than let margins continue to rise.

A lower interest charge due to ESL paying down some debt post capital raise, together with high EBIT growth, combines to drive our three-year (Edison definition – pre-amortisation and exceptionals) underlying EPS CAGR of 27.4%. Furthermore, we assume ESL will start paying a

Eddie Stobart Logistics | 19 June 2017 10

dividend this year on the basis of a 50% payout of underlying earnings. This implies an FY17e DPS of 5.5 pence per share, which implies a dividend yield of 3.4%.

IFRS 16: Operating lease accounting changes and their impact From 2019, in common with all other companies, ESL will change how it accounts for its operating leases. It will bring an asset and a liability on to its balance sheet and the £72m annual lease payment, instead of being expensed, will be split between depreciation and interest. Both net assets and EBIT will remain identical, but EBITDA will increase significantly. According to its admission document, under IFRS 16 FY16 EBITDA would increase by £72m to £118.7m. In the EVA analysis section below, we discuss how this might affect ESL’s fair value, including what we believe to be an appropriately higher WACC due to the increase in net debt. Until we know specifics on the impact of future changes, we have not altered our forecasts to reflect it.

A second order effect of this change would be an increase in ESL’s clients outsourcing their logistics operations. Retail and consumer goods companies might not want to increase their net debt (and therefore creditworthiness) by bringing operating leases onto their balance sheets and so may be more likely to seek to outsource their logistics operations. ESL, among others, would benefit in this scenario.

Management

Each of ESL’s top managers has significant experience running large organisations. Most have held senior roles, either within ESL or in logistics roles in other large organisations. They bring a wealth of both contacts and experience to the firm.

Chairman: Philip Swatman

Philip Swatman has extensive capital markets experience, having been a managing director and subsequently co-head of investment banking of NM Rothschild between 1998 and 2001, before serving as vice-chairman of investment banking until 2008. He has served as a non-executive director at nine companies.

CEO: Alex Laffey

Appointed in May 2015, Alex is an international logistics expert with over 25 years’ experience in supply chain distribution at a senior level. He headed international distribution for Tesco and managed Tesco’s UK logistics, with over 50,000 store deliveries per week and a £1.6bn annual cost base.

CFO: Damien Harte

Damien has over 30 years’ experience in senior financial positions at large organisations across a range of sectors in the UK and internationally, including logistics and distribution, manufacturing, renewable energy, media and leisure.

COO: David Pickering

David Pickering has worked for Eddie Stobart for over 25 years and as chief operating officer has leadership of operations directors, spanning manufacturing, industrial & bulk, e-commerce, retail and consumer.

Eddie Stobart Logistics | 19 June 2017 11

Sensitivities

As is to be expected, the nature of ESL’s business points to a number of stock-specific and general economic risks.

 Macro issues: Retail, Consumer and MIB, which together accounted for 81% of FY16 revenues, are GDP-sensitive in nature. In an economic contraction, goods volumes would decline. On a more macro level too, a ‘hard Brexit’ that involves restrictions on free movement of labour could potentially lead to a shortage of drivers, although ESL has been proactive in ensuring it has sufficient resources by such means as establishing a driver staffing JV called Logistics People.

 Customer and contract issues: while we forecast ESL will add new contracts each year, we acknowledge the risk that ESL fails to win new contracts. There is also a risk of customer churn, which, given the high degree of customer concentration, could pose a material risk to revenues. Also, given ESL’s contracts are ‘closed book’, low utilisation will challenge margins in the short term.

 M&A risks: given it is ESL’s strategy to pursue acquisitions, we should acknowledge that there is execution risk, financing risk and risk associated with the new businesses acquired.

 Technical issues: over 50% of the stock is held by the top five shareholders. With a lower than £300m effective free float, liquidity is relatively low and this may preclude large funds from investing. Furthermore, there is the possibility that one or more of the larger shareholders, notably the private equity holders, could wish to sell down their stake, potentially creating an overhang.

 Financial issues: ESL may incur a cash cost for the Eddie Stobart brand from 2020 or it might have to buy a perpetual right to use the brand in 2018.

Financials

Boosted by the £130m raised from the IPO on 25 April, and after the £45m iForce acquisition in April 2017, ESL carries a strong balance sheet and is cash-generative, leaving scope for further bolt-on acquisitions and payment of a dividend.

Cash flow: Asset light model leaves ample cash for dividends Due to ESL’s asset-light model – the company leases its fleet of 2,200 trucks and 3,800 trailers from Volvo and Scania – the company’s capex requirement is low. We forecast investments of around £7m per year in PP&E, which is just over 1% of sales. The largest drag on cash flow is working capital; we forecast that FY18e receivables alone will absorb cash flow of £21m, although we note that management has extended its discounting facility to £60m from £40m to tackle its working capital drag.

With our forecast FY18 underlying EBITDA of £64.4m, net interest of £5.5m, tax of £6.7m, net working capital of £11.5m and capex of £7m, ESL will have ample cash to cover our forecast cash dividend cost of £22.1m (final FY17e dividend and interim FY18e dividend) and pay down some debt.

Eddie Stobart Logistics | 19 June 2017 12

We expect the company to continue to actively seek small-scale, bolt-on acquisitions, which will be financed mainly through debt. We do not include acquisitions other than those already announced in our earnings forecasts.

Balance sheet: Keep on bolting-on At the end of November 2016, ESL had net debt of £165.5m. It raised £129.7m from the IPO in April and used £45m of the proceeds to buy iForce. We forecast it will generate £24.7m of operating cash flow in FY17 and net interest, tax, capex and dividends will absorb £23.4m, resulting in our forecast FY17 net debt figure of £79.1m.

Given balance sheet strength and our forecast that ESL will start paying dividends in FY17, we believe the company will finance M&A mainly through debt. Management has publicly stated it will look to make small acquisitions in the highly fragmented UK transportation sector and has put in place a debt ceiling of 2x the last 12 months (LTM) EBITDA. We estimate that end November 2017 net debt/EBITDA will be a conservative 1.4x, down from 3.4x at the end of November 2016.

Valuation

We value ESL using multiple valuation methodologies: discounted-cash-flow (WACC 7.4%, terminal growth 1%), peer multiple comparison and EVA analysis. Our fair value per share of 200p is based on the average of these three methodologies and offers equity holders an attractive 26% upside to the current price of 158.5p per share.

Peer comparison: 26% upside We base our peer multiples comparison-driven fair value on global average one-year forward EV/EBIT multiples. These are typically used in the transport and logistics sector globally as this measure removes different accounting treatments of operating leases (see comment on page 11 relating to upcoming accounting changes for operating leases). Exhibit 15 shows a global average EV/EBIT of 14.2x. The UK average one-year forward EV/EBIT is 13.1x with a significant valuation differential between perceived e-commerce-focused operator Clipper, trading on 22.0x, and traditional logistics company Wincanton, which trades on 8.6x. Following its iForce acquisition, ESL will earn more than 20% of its revenues from e-commerce. Furthermore, it compares very favourably to Wincanton in terms of revenue growth (13.6% three-year revenue CAGR versus consensus revenue CAGR for Wincanton of 3.0%). We forecast ESL will continue to outperform Wincanton on EBIT margins (FY17e 7.5% versus 4.6% for Wincanton according to consensus). In addition, it offers a 3.5% dividend yield versus Wincanton’s consensus forecast dividend yield of 3.0%. We consequently apply a 14.0x EV/EBIT multiple for ESL and note that our multiple-based fair value per share of 200p implies a reasonable price-earnings-to-growth ratio of less than 1.0x.

Eddie Stobart Logistics | 19 June 2017 13

Exhibit 15: Peer comparison table Company Share price Market cap Dividend Current P/E Next P/E Current EV/ Next EV/ Net debt to (local) (local, m) yield EBIT EBIT +1y EBITDA Deutsche Post AG 32.9 39,892 3.2% 14.7x 13.7x 11.3x 10.4x 0.5x Kuehne + Nagel International AG 158.4 19,008 3.5% 25.1x 23.4x 18.7x 17.3x -0.7x DSV A/S 408.5 77,615 0.4% 24.1x 21.1x 19.6x 17.4x 1.6x Panalpina Welttransport Holding AG 135.0 3,206 2.6% 33.1x 26.0x 21.1x 16.5x -2.2x ID Logistics Group 133.8 748 0.0% 36.3x 22.3x 20.1x 14.6x 0.5x XPO Logistics Inc 61.4 6,854 0.1% 31.1x 21.0x 16.1x 12.7x 3.3x Average Global 1.6% 27.4x 21.3x 17.8x 14.8x 0.5x Clipper Logistics PLC 445.3 446 1.6% 35.6x 29.7x 26.1x 22.0x 0.7x DX Group PLC 1.1x Wincanton PLC 304.5 379 3.0% 10.6x 10.2x 8.9x 8.6x 0.4x Royal Mail PLC 441.1 4,411 5.4% 11.2x 10.7x 8.8x 8.6x 0.4x Average UK 3.3% 19.1x 16.8x 14.6x 13.1x 0.7x Average Global 2.2% 24.7x 19.8x 16.7x 14.2x 0.6x Eddie Stobart Logistics 158.0 565 3.4% 14.4x 12.8x 13.2x 12.2x 1.4x Source: Edison Investment Research, Bloomberg data. Note: Priced on 14 June 2017.

DCF: 20% upside Our DCF valuation of 190p is based on five years of explicit earnings forecasts after which point we take a terminal value with a 1% terminal growth rate. Our WACC is 7.4%.

Exhibit 16: Discounted cash flow analysis £m p/share EV (£m) 754.0 210.7 FY17e net debt (£m) 79.1 13.9 Current number of shares (m) 357.9 Fair value (£m) 674.9 188.6 Current market cap (£m) 567.8 158.7 Upside / (downside) (%) 18.9% DCF (£m) 2017e 2018e 2019e 2020e 2021e Terminal value EBIT 48.6 56.3 64.5 67.7 71.1 Less cash taxes (2.3) (6.8) (8.2) (8.6) (9.0) Tax rate -4.6% -12.1% -12.7% -12.7% -12.7% NOPLAT 46.4 49.5 56.3 59.1 62.1 Working Capital (12.7) (11.5) (15.0) (15.8) (16.5) Add back depreciation 7.0 8.1 9.3 9.8 10.3 Less capex (7.5) (7.0) (7.0) (7.4) (7.7) Free cash flow 33.2 39.1 43.6 45.8 48.1 48.6 FCF growth 17.7% 11.4% 5.0% 5.0% 1.0%

WACC 7.4% 7.4% 7.4% 7.4% 7.4% 7.4% Year 0.0 1.0 2.0 3.0 4.0 Discount factor 1.00 0.93 0.87 0.81 0.75 0.75 Discount cash flow 33.2 36.5 37.8 37.0 36.2 573.3 NPV 754.0 720.8 684.3 646.5 609.5 573.3 EV/EBITDA 13.5x 11.7x 10.2x 9.7x 9.3x Source: Edison Investment Research Exhibit 17 shows our valuation with a range of WACC assumptions. A 2% increase in the WACC decreases the implied value by 26% to 140p. A 2% decrease in the WACC increases the fair value by 50% to 282p.

Eddie Stobart Logistics | 19 June 2017 14

Exhibit 17: DCF sensitivity to WACC (p/share) Discount rate (post-tax, nominal) 5.4% 6.4% 7.4% 8.4% 9.4% 0.0% 233.2 194.0 165.5 143.8 126.7

0.5% 255.1 208.9 176.2 151.8 132.9 1.0% 282.1 226.6 188.6 160.9 139.8

growth Terminal Terminal 1.5% 316.0 247.9 203.1 171.3 147.6 2.0% 359.9 274.1 220.3 183.3 156.4 Source: Edison Investment Research

EVA: 31% upside We believe ESL’s return on capital employed (ROCE) should be properly calculated in order to complete an EVA analysis. In our preferred ROCE measure, we take account of operating leases that are currently accounted for off balance sheet and we deduct intangible assets that relate to a previous acquisition. We add back £72m operating lease cost to NOPAT as this should be accounted for as a finance charge. We add the value of the right-of-use asset (£462m) to ESL’s capital employed and we add the liability (also £462m) to our net debt estimates. Given the fact that our FY17e net debt to EBITDA increases from 1.4x to 4.3x using this methodology, we feel it appropriate to increase ESL’s WACC, which we currently assume is 7.4%, to 9.5% to reflect the significantly higher leverage. The net result of these changes, shown in Exhibit 18, is an FY18e ROCE of 21.0% and a WACC of 9.5% giving a ROCE/WACC multiple of 2.2x. We gross up ESL’s capital employed by 2.2x and deduct net debt of £539m in arriving at our FY18e fair value per share of 207p, which offers equity holders 31% upside to current levels.

For completeness, in Exhibit 18 we also show our calculations for ESL’s ROCE based on two other definitions of capital employed: a simple ROCE calculation and a ROCE minus intangible assets calculation. This is to give investors the ability to flex the value per share depending on their own definition of ROCE.

Eddie Stobart Logistics | 19 June 2017 15

Exhibit 18: EVA analysis (£m ) 2016 2017e 2018e 2019e Simple ROCE calculation Capital employed (total fixed assets including amortisation + current assets − 288.3 307.8 316.2 328.2 current liabilities) NOPAT (underlying EBIT − tax) 40.7 46.4 49.5 56.3 ROCE (%) 14.1% 15.1% 15.7% 17.2% WACC (%) 7.4% 7.4% 7.4% 7.4% ROCE/WACC multiple (x) 1.9x 2.0x 2.1x 2.3x Net debt 165.5 79.1 66.5 52.8 Net debt/ EBITDA (x) 3.4x 1.4x 1.0x 0.7x EVA fair value (ROCE/WACC × capital employed − liabilities) 386.6 550.2 604.8 710.9 Fair value per share (pence per share) 153.7 169.0 198.6 Excluding intangibles ROCE calculation Capital employed (total fixed assets including amortisation + current assets − 288.3 307.8 316.2 328.2 current liabilities) Intangibles 219.3 209.8 200.3 190.8 Capital employed less intangibles 68.9 98.0 115.9 137.3 NOPAT (underlying EBIT - tax) 40.7 46.4 49.5 56.3 ROCE (%) 59.1% 47.3% 42.7% 41.0% WACC (%) 7.4% 7.4% 7.4% 7.4% ROCE/WACC multiple (x) 8.0x 6.4x 5.8x 5.6x Net debt 165.5 79.1 66.5 52.8 Net debt/ EBITDA (x) 3.4x 1.4x 1.0x 0.7x EVA fair value (ROCE/WACC × capital employed − liabilities) 386.6 550.2 604.8 710.9 Fair value per share (pence per share) 153.7 169.0 198.6 Including operating lease ROCE calculation Capital employed (total fixed assets including amortisation + current assets − 288.3 307.8 316.2 328.2 current liabilities) Intangibles 219.3 209.8 200.3 190.8 Operating lease liability 462.2 462.2 462.2 462.2 Capital employed less intangibles plus operating lease liability 531.1 560.2 578.1 599.5 NOPAT (underlying EBIT − tax) 40.7 46.4 49.5 56.3 Operating lease cost 71.5 72.0 72.0 72.0 EBIT pre operating lease cost 112.2 118.4 121.5 128.3 ROCE (%) 21.1% 21.1% 21.0% 21.4% WACC (%) 9.5% 9.5% 9.5% 9.5% ROCE/WACC multiple (x) 2.2x 2.2x 2.2x 2.3x Net debt (adjusted for £472m operating lease liability) 637.5 551.1 538.5 524.8 Net debt/EBITDA (x) 5.3x 4.3x 3.9x 3.6x EVA fair value (ROCE/WACC × capital employed − liabilities) 543.6 695.2 740.4 825.8 Fair value per share (pence per share) 194.2 206.9 230.7 Source: Edison Investment Research

Eddie Stobart Logistics | 19 June 2017 16

Exhibit 19: Financial summary £m 2015 2016 2017e 2018e 2019e Year-end 30 November IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 496.5 570.2 648.2 741.9 835.8 EBITDA 44.5 48.2 55.7 64.4 73.8 Operating Profit (before amort. and except.) 37.7 42.0 48.6 56.3 64.5 Intangible Amortisation (9.5) (9.5) (9.5) (9.5) (9.5) Exceptionals (3.1) (2.4) (18.3) 0.0 0.0 Other 0.0 0.0 0.0 0.0 0.0 Operating Profit 25.1 30.1 20.8 46.8 55.0 Net Interest (16.7) (16.0) (7.2) (5.5) (5.3) Profit Before Tax (norm) 21.0 26.1 41.4 50.8 59.1 Profit Before Tax (FRS 3) 8.5 14.1 13.6 41.3 49.6 Tax (1.6) (1.3) (2.3) (6.7) (8.0) Profit After Tax (norm) 19.4 24.7 39.2 44.1 51.1 Profit After Tax (FRS 3) 6.8 12.8 11.4 34.6 41.6 Minority interest 0.0 0.0 0.9 1.1 3.1 Net Income (norm) 19.4 24.7 40.1 45.2 54.2 Net Income (FRS 3) 6.9 12.8 12.3 35.7 44.7 Average Number of Shares Outstanding (m) 357.9 357.9 357.9 357.9 357.9 EPS (pence per share) - normalised 5.4 6.9 10.9 12.3 14.3 EPS (pence per share) - normalised and fully diluted 5.4 6.9 10.9 12.3 14.3 EPS (pence per share) - (IFRS) 1.9 3.6 3.2 9.7 11.6 Dividend per share (pence per share) 0.0 0.0 5.5 6.2 7.1 EBITDA Margin (%) 9.0 8.4 8.6 8.7 8.8 Operating Margin (before GW and except.) (%) 7.6 7.4 7.5 7.6 7.7 BALANCE SHEET Fixed Assets 262.7 258.1 294.1 283.5 271.7 Intangible Assets 225.5 219.3 209.8 200.3 190.8 Tangible Assets 36.8 37.9 83.3 82.2 79.9 Investments 0.4 0.9 0.9 0.9 0.9 Other 0.0 0.0 0.0 0.0 0.0 Current Assets 120.9 150.3 178.8 207.4 237.3 Stocks 1.9 2.4 2.7 3.1 3.4 Debtors 114.9 133.8 145.6 166.7 187.8 Cash 4.1 14.1 30.5 37.7 46.1 Current Liabilities (109.7) (120.1) (135.1) (145.0) (151.5) Creditors (99.6) (110.6) (125.5) (135.5) (142.0) Short term borrowings (5.5) (6.2) (6.2) (6.2) (6.2) Other (4.5) (3.3) (3.3) (3.3) (3.3) Long Term Liabilities (197.2) (198.8) (113.3) (108.3) (103.3) Long term borrowings (168.5) (173.4) (103.4) (98.4) (93.4) Employee benefits 0.0 0.0 0.0 0.0 0.0 Other long term liabilities (28.7) (25.5) (10.0) (10.0) (10.0) Net Assets 76.8 89.4 224.5 237.5 254.1 CASH FLOW Operating Cash Flow 32.7 29.7 24.7 53.0 58.8 Net Interest (12.8) (10.3) (7.2) (5.5) (5.3) Tax (3.9) (1.7) (2.3) (6.7) (8.0) Capex (7.7) (8.1) (7.5) (7.0) (7.0) Acquisitions/disposals 18.7 5.5 (45.0) 0.0 0.0 Financing 0.5 0.0 130.1 0.5 0.5 Dividends 0.0 0.0 (6.5) (22.1) (25.5) Net Cash Flow 27.6 15.2 86.4 12.2 13.4 Opening net debt/(cash) 191.4 169.9 165.5 79.1 66.9 HP finance leases initiated 0.0 0.0 0.0 0.0 0.0 Other (6.1) (10.8) 0.0 (0.0) (0.0) Closing net debt/(cash) 169.9 165.5 79.1 66.9 53.5 Source: Eddie Stobart Logistics data, Edison Investment Research

Eddie Stobart Logistics | 19 June 2017 17

Contact details Revenue by geography Eddie Stobart Logistics Stretton Green Distribution Park % 93% 7% Langford Way Appleton Warrington UK Europe WA4 4TQ http://eddiestobart.com 01925 605400

Management team CEO: Alexander (Alex) Laffey CFO: Damien Harte Appointed in May 2015, Alex is an international logistics expert with over 25 Damien joined ESL in December 2016. He has over 30 years’ experience in years’ experience in supply chain distribution at a senior level. He headed senior financial positions of large organisations across a range of sectors in the international distribution for Tesco and led a review of the company’s global UK and internationally, including logistics and distribution, manufacturing, logistics blueprint to realise synergies across all of its markets. This programme renewable energy, media and leisure. Most recently he was global CFO of LM delivered significant cost savings and service improvements. In addition, Alex Windpower, a leading player in the global renewable energy market. Damien is a also managed Tesco’s UK logistics, with over 50,000 store deliveries per week Certified Accountant and holds an MBA from the University of Chicago. and a £1.6bn annual cost base. Chairman: Philip Swatman COO: David Pickering Philip has extensive capital markets experience, having served as a managing David has over 25 years’ logistics experience, having joined Eddie Stobart in director and subsequently co-head of investment banking of NM Rothschild 1990 at the age of 17. David has detailed knowledge of Eddie Stobart’s between 1998 and 2001, thereafter serving as vice-chairman of investment operations, spanning the MIB, e-commerce, retail and consumer sectors, and as banking until 2008. Philip has been involved in a significant number of high- COO, David leads a team of operational directors in the UK divisions of the profile transactions including the IPO of Vodafone and the sale of BPB to Saint business. David is a Chartered Fellow of the Chartered Institute of Logistics and Gobain. Philip has served as a non-executive director at nine companies, Transport. including his present roles as a member of the Council of Lloyd’s, chairman of Wyvern Partners and non-executive chairman of Cambria Automobiles since 2012.

Principal shareholders (%) Woodford Investment Management 19.29% Greenwhitestar 15.01% Stobart Group 12.49% Axa 6.98% Invesco 5.06%

Companies named in this report Deutsche Post (DPW), Kuehne + Nagel (KNIN), DSV (DSV), Panalpina (PWTN), ID Logistics (IDL), XPO (XPO), Clipper Logistics (CLG), DX group (DX), Wincanton (WIN), Royal Mail (RMG)

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com DISCLAIMER Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Eddie Stobart Logistics and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent. Frankfurt +49 (0)69 78 8076 960 London +44 (0)20 3077 5700 New York +1 646 653 7026 Sydney+61 (0)2 8249 8342 EddieSchumannstrasse Stobart 34b Logistics | 19 June280 2017 High Holborn 295 Madison Avenue, 18th Floor Level 12, Office 1205 18 60325 Frankfurt London, WC1V 7EE 10017, New York 95 Pitt Street, Sydney Germany United Kingdom US NSW 2000, Australia