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Connect (LSE:CNCT) is developing some interesting businesses, which might, one day, provide growth in earnings and dividends.
Pass My Parcel
This is clever extension of the core business, using resources already within the company. For decades Connect News has been sending out hundreds of vans every morning to deliver newspapers and magazines to thousands of small shops in communities up and down the country.
The vans are not always full and so have spare capacity to carry something else to the small shops on the morning run.
Also, the vans are empty when travelling back to the depot, and so have available space to carry goods back there.
And there are large parts of the day when the vans are not being used for newspapers at all.
A new way of retailing comes along
ASOS, French Connection and Amazon internet-purchased goods need to be delivered in a way that is convenient to customers. Mostly, this is direct to the customer’s home.
But, increasingly, buyers prefer to pick up the item from a local store or other designated place at a time that suits them.
Furthermore, they want to return two-thirds of the items bought by taking it to a designated place and not have the hassle of waiting-in for a parcel company van, nor to traipse to the post office.
And they want to make the arrangement using their smart phone when on the move.
A marriage made
In 2014 Connect launched Pass My Parcel, with Amazon as the main customer – a “Click and Collect” service. Consumers can order up to 11.45pm and collect from their local newsagent after 4pm the same day.
They receive an email to tell them the order is available. They can pick up the package up to 11.59pm, depending on when the store closes.
If the order is placed before 7.45pm then PMP guarantee availability for collection the next morning, as they generally deliver 6.30am – 9am.
To start with, Connect signed up 500 newsagents and convenience stores in 2014.
It now has contracts with ASOS and FC, and partners with over 3,300 newsagents and convenience stores. In July 2017 it averaged 23,400 parcels per week, up 149% on the same period last year.
UK Mail was recently signed up for a PMP service to handle returns and failed household deliveries. Also, a PMP’s online portal has the potential to allow thousands of small businesses selling on sites such as eBay to use its network.
Disappointment
Unfortunately, growth expectations for the PMP business were over-hyped: in the year to August 2016 they shifted 0.5m parcel. But they created a hostage to fortune by then stating the target for 2017 was a six-fold increase to 3m parcels.
They are behind on this – more likely around 1.2m. The market displeasure may explain the drooping share price.
There is disappointment that they’ve not reached sufficient scale to be profitable: in 2015 £2.1m was lost in this business, followed by a loss of £4m in 2016, and “we expect to continue incurring losses as we grow our share of the market”(2016 Report).
In the February 2017 interims they admit “overall customer awareness is taking longer than we expected to develop at scale”.
They are prepared to accept these losses in order to create a business with enormous potential once a threshold of size of operation is passed:
“Our strategy acknowledges that the development of retailer clients and services will take time; and that new clients require sophisticated technology, operational integration and marketing solutions. We are pleased with progress to date and have a pipeline of interest from new clients, together with developments that will increase the scale and scope of Pass My Parcel over time. Our ongoing investment strategy reflects our confidence that the medium term opportunity is significant and that the Group has established capabilities that support our competitiveness in this market.” (2016 Report).
Guesses about the size of the UK click and collect market next year are around £6.5bn. If PMP can gain revenue from a few percent of that, it might be a nice earner.
Tuffnells
Connect bought Tuffnells in 2014 for £139m (including delayed payments). It specialises in mixed freight and “uglies” parcels, of irregular weight and dimensions, with an emphasis on time-sensitive deliveries. It has 37 depots handling over 13m consignments a year.
The majority of its 4,700 customers are medium-sized enterprises opera……………….
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