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Deutsche Post - pandemic, parcels and profits

Nicholas Hyett, Equity Analyst | 9 March 2021 | A A A
Deutsche Post - pandemic, parcels and profits

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Deutsche Post AG NPV

Sell: 53.78 | Buy: 54.04 | Change -1.34 (-2.41%)
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Deutsche Post reported full year revenues of €66.8bn, up 5.5% year-on-year at constant exchange rates. That reflects growth in the group's German Parcels, eCommerce and Express businesses, which all benefitted from the effect of national lockdowns, partially offset by weaker results in Global Supply chain.

Operating profits of €4.8bn were some way ahead of previous guidance and up 17.4% year-on-year.

The group announced dividends for the full year of €1.35 per share, up from €1.15 a year ago.

Deutsche Post shares rose 2.1% in early trading.

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Our View

Deutsche Post has a dominant position in the German postal market - delivering some 62% of all letters last year. That exposes it to the steady decline in global letter volumes, a trend that's been accelerated by coronavirus as marketing mail collapsed. Fortunately that's been more than offset by the surge in parcel deliveries, as retailers and shoppers turn to online alternatives.

However, Deutsche Post is far more than a national postal service, with domestic post and parcels accounting for just 33% of group profits last year. Instead it's the global parcels and logistics businesses that really sets it apart.

DHL Express is the world's largest provider of premium, cross-border parcel and document delivery services, and its 'Time Definite' product has been a star performer in recent years. Deutsche Post's other divisions provide additional parcel, freight brokerage and outsourced logistics services in hundreds of countries around the world.

The group navigated the coronavirus crisis well on that front. In particular it has benefited from improved pricing in air freight, as global capacity shrank but demand proved more robust. We doubt that will be sustained long term, especially once passenger planes get back into the air, but the underlying growth in parcel volumes may be a more enduring trend. International Time Definite volumes rose 17.3%in the final quarter of the year, with domestic volumes up even more, rising 21.8%.

We also see the election of Joe Biden as US president as a positive for the group. A large portion of revenues rely on cross-border trade, and better relations between the US and its major trading partners would likely be a positive.

If the current crisis moves from being a healthcare centred issue to a more 'normal' economic downturn Deutsche Post could yet suffer. But the group has weathered tough times before and has access to several billion in short term cash or debt funding. That should help it emerge from any economic downturn with attractive market positions broadly unchanged.

With analysts are currently forecasting a prospective yield of 3.3%, and upside when the recovery comes, there are probably worse places to wait out a potential downturn.

Deutsche Post key facts

  • Price/Earnings ratio: 15.3
  • Average Price/Earnings ratio since listing: 13.3
  • Prospective dividend yield (next 12 months): 3.3%

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

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Full Year Results

Post & Parcel Germany reported full year revenues of €16.5bn, up 6.9% year-on-year. That reflects strong growth in German Parcels (21.9%) and International (8.9%), partially offset by a decline in letters as direct marketing mail continued to shrink. Operating profits in the division rose 29.4% to €1.6bn.

The Express business saw revenues rise 11.9% to €19.1bn. Growth was strong growth across all regions, led by a 17.1% increase in Asia Pacific to €7.1bn. The division saw growth in the premium Time Definite arrivals product both domestically and internationally. Express reported operating profits of €2.8bn, up 34.9%.

Revenues in Global Forwarding, Freight rose 5.2% to €15.9bn, with operating profits up 13.2% to €521m. That was despite a significant decline in global volumes, and reflects increased pricing as the world saw significant capacity shortages as a result of pandemic disruption to global air travel.

The Supply Chain business reported revenues of €12.5bn, down 7.4% year-on-year, and an operating profit of €426m, 53.2% lower than 2019. However, that reflects the non-recurrence of gains on disposal reported last year following the sale of the Chinese Supply Chain business.

eCommerce reported a 19.4% rise in full year revenues to €4.8bn, with operating profits of €158m compared to a €51m loss a year ago. That reflects rapid growth across all regions, although Spain and India reported sharp volume declined and additional costs.

Full year free cash flow came in at €2.5bn, up 192.4%. That reflects higher profits and also a 17.1% reduction in capital expenditure. Net debt fell €439m to €12.9bn.

For 2021 Deutsche Post is targeting group operating profit of over €5.6bn, free cash flow of €2.3bn and a dividend equal to 40-60% of net profit.

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This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.