Corporate Express delivers

Office products supplier Corporate Express is one such tenbagger. Those who were lucky or astute enough to buy shares five years ago and hold on are sitting on returns of 1,000% or more, which sure beats what you get from your managed fund these days.

But the past can only count for so much when it comes to investment analysis. It's the future that matters more, so let's start with a quick rundown of this business and its prospects from here.

Corporate Express is a 'one-stop' supplier for all the office products and services its customers require. Need a new chair or computer? It can supply them. Ditto for coffee, printing paper, mops and toilet paper.

But the local super centre can provide those items too.

The real secret of Corporate Express' success can be found in its mission, where its stated aim is to 'reduce the cost of doing business for our customers.'

Effectively, it makes money by saving money for customers. We hate to sound like slick-haired marketers, but that sounds like a 'win-win' to us.

Corporate Express reduces the time and effort ordinarily spent by customers acquiring supplies. It offers an easy ordering process and next business day delivery. The company's NetXpress II internet-based ordering system now accounts for 56% of total orders, up from 15% in 1998 and 29% in 2000. Who says the Internet was a fool's paradise?

Another dimension to its success has been its strategy of acquiring scores of small competitors to help gain the scale necessary to become the lowest-cost operator. And strict takeover criteria employed in assessing acquisitions has ensured that it hasn't come unstuck by paying too much to do so.

Useful expertise

Of course, Corporate Express has been helped by its 52% shareholder Buhrmann NV, the Dutch-based world leader in distributing office products. It has provided useful expertise through its two directors on the board.

Worryingly, there are rumours that Buhrmann may be looking to sell its stake, although its contribution is less important now that Corporate Express is well entrenched in the market.

Indeed, the company's financial position is pristine. In the full-year to 31 December 2002, it increased its earnings per share, before goodwill amortisation, by 33% to 25.1 cents as profit margins moved up from 7.8% to 8.8%. Net debt-to-equity is less than 1% and the accounting policies look conservative.

The company expects to achieve profit growth of 12-15% for the 2003 full year and, given the reduced cost of imported supplies thanks to the strong Australian dollar, it may do a little better than that.

Everything is looking good in terms of the operating performance. Sadly though, we're not as impressed with the price as we are the company. Corporate Express is trading on a PER of almost 18 which, while not unjustifiable for a company of this standing, leaves little room for error.

With the stock down 14% since issue 110/Aug 02 (Hold for the Upside - $5.23), it's starting to look more reasonable but we're not willing to upgrade our recommendation just yet. A sale by Buhrmann may give us the opportunity we're looking for. This is one to put on your watchlist. For now, it remains a HOLD FOR THE UPSIDE.