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Deutsche Post - dividend raised as profits rise

Full year revenue rose 22.5% to €81.7bn reflecting growth across all divisions and higher growth...

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Full year revenue rose 22.5% to €81.7bn reflecting growth across all divisions and higher growth outside of Germany. Despite increased expenses, due to higher transport costs and increased staffing, operating profits grew 65% to €8.0bn - ahead of targets.

For 2022, the group's targeting operating profits of around €8.0bn, and free cash flow generation of about €3.6bn.

The board has proposed a dividend of €1.80.

The shares rose 5.4% in early trading.

View the latest Deutsche Post share price and how to deal

Our View

Deutsche Post may well be the dominant player for delivering letters and parcels in Germany, but we're in the midst of a structural decline in the letters market that's been accelerated by the pandemic.

Good news then that Deutsche Post's German revenue is evenly split between parcels and letters. But it is far more than just a national postal service. Domestic post and parcels accounted for just 21% of group profits in 2021. Instead, it's the global parcels and logistics businesses that really sets it apart, and which is worth investors' attention.

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 resumption of global trade flows is generally good news for the group, and we've seen the benefits feed through to last year's results. Growth from here is expected to be modest, not monumental, but there are some drivers working in the groups favour. E-commerce related sales now make up over 25% of group revenue, which is an area we can see growing further as lockdown shifted many shoppers online permanently. And the DHL business segments are set up to capture every leg of the journey, from international shipping, to fulfilment and last mile delivery.

But disruptions aren't fully in the rear-view mirror yet. Grounded flights last year meant air cargo capacity was tight, leading the group to invest in expanding its own fleet of aircraft. And we don't yet know what impact the war in Ukraine will have on the global transportation market. We expect it'll cause a further tightening of available cargo space.

The group's valuation has come down somewhat this year, which makes the prospects more attractive than they have been in the past. The prospective dividend yield is well covered and now at a level that's worthy of attention, plus profits should steadily grow in the low single digits over the next few years.

That said, we worry that this is just about as good as it gets for Deutsche Post - with recovering corporate demand and ecommerce plateauing after a golden era. It's hard to see how the group can make rapid progress from here.

Deutsche Post key facts

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.

Full Year Results

The Express business reported revenue up 26.6% to €24.2bn, reflecting increased volumes and sales both in Germany and abroad. Europe, the Americas and Asia Pacific regions all posted revenue growth in the mid to high 20's. That helped operating profit grow 53.4% to €4.2bn. Cancelled flights meant the group struggled in some instances to purchase cargo space. The group's own fleet was expanded by 14 aircraft over the year, with a further 8 due in 2022.

Global Forwarding, Freight saw revenue rise 44.4% to €22.8bn. That was helped by a 25.7% increase in air freight volumes as global merchandise trade recovered, specifically between Asia and the US. Ocean Freight revenue more than doubled due to tight capacity pushing prices higher. Divisional operating profits more than doubled to €1.3bn.

Revenue in the Supply Chain division grew 10.5% to €13.9bn, driven by growth in all regions and sectors. New business was up 8.7% with e-commerce, Consumer, and Life Sciences & Healthcare sectors contributing to the growth. As well as the higher revenue, productivity improvements and digitisation helped operating profit grow 66.3% to €705m.

Ecommerce solutions posted revenue of €5.9bn, up 22.8%. That reflected growth across all regions due to higher business to consumer volumes. Operating profits rose to €417m from €158m due to higher revenues and cost management.

Postal & Parcel Germany saw revenue grow 6% to €17.4bn, as strong parcel demand offset a drop in letter volumes. Again, cost management helped operating profits grow faster than sales, up 9.7% to €1.7bn.

The group generated free cash flow of €4.1bn, well ahead of the "more than" €3.6bn target. Net debt improved slightly, from €12.9bn to €12.8bn.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. 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 disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 9th March 2022