Market overreacts to CTI's solid results

Shares in CTI Logistics have plunged the most in six years despite reporting steady results, with the market appearing to overreact to management's relatively downbeat commentary.

Shares in CTI Logistics (CLX) have plunged the most in six years despite the company reporting steady results and a higher dividend, with the market appearing to overreact to management's relatively downbeat commentary.

While the half-year results were in line with our expectations, with reported revenue growth at 17.3% and reported profit growing 8.9% to $6.7m (including one-off items), executive chairman David Watson highlighted that operating conditions remain tough.

"We are operating in a market which has suffered from the end of the resources boom, and at this time it's not yet easy to see light at the end of the tunnel, with our all businesses affected to some degree," he said.

The comments caused the share price to fall 13.9% to $2.10 at 1251 AEDT. However, given the stock is illiquid, the move could be distorted.

Further, the logistics company has continued to grow revenue and profit despite these difficult conditions. It is also worth noting that the company has traditionally been conservative with its commentary and outlook statements.

The interim dividend was increased from 3.5c to 4c, reflecting the company’s expectations of continued growth.

The one-off items include $1.25m of expensed costs in establishing its new regional network; this cost arguably could have been capitalised on the balance sheet. The reported result also included a profit on the sale of three property assets for $2.92m, while taking impairments totalling $1.6m on two other properties. When these one-off items are normalised, the adjusted profit has still achieved slight growth.

The second stage of its Hazelmere warehousing and distribution complex (near Perth airport) is nearly complete, and the company has continued to invest heavily in expanding its network.

As I have highlighted in CTI's road to expansion and in my recent update, I continue to hold a favourable view on the company.