Distributor Connect (CNCT) will look to do more deals on the back of its acquisition of parcels specialist Tuffnells in late 2014.

Speaking after half-year results today, chief executive Mark Cashmore says mergers and acquisitions (M&A) are an important part of its strategy and more deals are possible over the next two to three years.

Revenue at Tuffnells grew 12% year-on-year helping Connect as a whole grow sales 4.2% to £948 million and profit-before-tax 12.9% to £21.5 million.

Underlying earnings per share gained 3.5% to 8.9p.

‘We’ve been very clear that M&A will be a continuing feature of our strategy going forward,’ says Cashmore.

‘Over the next two to three years, do I see more deals happening? Quite possibly.

‘Do we need to do deals? Absolutely not.’

Connect is aiming to diversify away from its declining news and magazines distribution division, a market in which it holds a 55% market share.

In the year ahead, balancing debt reduction, returns to shareholders and organic and M&A-led investment is a key priority, Cashmore says.

Pass My Parcel, Connect’s same-day parcel delivery initiative with retailer Amazon (AMZN:NYSE), is one area Cashmore expects to deploy funds, earmarking around £3 million this year to build out IT infrastructure and brand awareness.

PMP is expected to break even in 2018.

Opportunities at Tuffnells revolve around closer integration with Connect’s news and magazines distribution business.

Markets in Education & Care division are tough according to Cashmore, citing trading updates from sector specialists Findel (FDL) and RM (RM.). But there could be further opportunities to expand in this market, too.

E-commerce at Connect, which includes Wordery, the UK’s third-largest online bookseller, is another potential avenue for investment.

‘Each of our sectors are at different stages of maturity,’ says Cashmore.

‘We will invest in Pass My Parcel, Tuffnells and e-commerce. It will be a combination.

‘If you look at the balance sheet, net debt to EBITDA is currently two times – well within our covenants – and we are comfortable with that. Over time, we expect it to move down to a target of one to one-and-a-half.’

Shares in Connect trade 0.8% higher at 153p.

Issue Date: 19 Apr 2016