Deutsche Post AG (DPW) NPV
HL comment (5 August 2021)
Deutsche Post reported second quarter revenues of €19.5bn, up 22.2% year-on-year. That reflects very strong growth outside of Germany, offset by a more modest domestic performance.
Operating profit more than doubled to €2.1bn.
Deutsche Post shares fell 1% following the announcement.
Deutsche Post has long been Germany's answer to Royal Mail - delivering some 60%+ of all German 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 German retailers and shoppers turn to online alternatives.
However, Deutsche Post is far more than a national postal service. Domestic post and parcels accounted for just 33% of group profits in 2020. 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 group navigated the coronavirus crisis well. In particular it has benefited from improved pricing in air and ocean 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 in numbers, but the underlying growth in parcel volumes may be a more enduring trend. International Time Definite volumes continued to rise sharply in the second quarter.
The resumption of global trade flows is also good news for the group. US/China tensions could yet upset the apple cart, but at the moment it feels like cross border shipments are on the up, and that should be good news for volumes.
However, Deutsche Post's positive prospects are reflected in a PE ratio that's 15.4% above its long run average and a prospective dividend yield of 2.9% that isn't particularly generous. Given that earnings are probably close to a temporary high thanks to coronavirus related tailwinds - that valuation looks even higher on a normalised basis. Investors should ask themselves whether we are approaching a highwater mark.
Deutsche Post key facts
- Price/Earnings ratio: 15.7
- 10 year average Price/Earnings ratio: 13.6
- Prospective dividend yield (next 12 months): 2.9%
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 of €6.0bn, up 31.8%, with operating profits more than doubling to €1.2bn. That reflects continued growth in the group's time definite parcel volume both in Germany and abroad, up 3.2% and 20.2% respectively, with international growth driven by expansion in the Americas.
Global Forwarding, Freight reported 26.5% revenue growth, now at €5.2bn, with operating profits up 64.2% to €312m. Revenues were driven by the recovery in global trade, with particularly strong growth in ocean freight from Asia to the US and Europe.
Revenues in Supply Chain came in at €3.3bn, up 21.3%, while operating profits more than doubled to €198m. All regions grew faster than normalisation of business activities, with new business wins in Life Sciences & Healthcare, Consumer and Retail and a lot of that attributable to continued growth in e-commerce.
Deutsche Post's Ecommerce business reported revenue of €1.4bn, up 23.4%. Operating profits hit €116m, up from €1m last year. Revenues reflect growth of the B2C business, while good cost management boosted operating profits.
Post & Parcels Germany reported revenues of €4.2bn, up 7.4% year-on-year, with operating profits of €315m up 19.3%. Revenue growth was driven mostly by growth in parcels, although letters also managed to post a modest 2.1% year-on-year increase as direct marketing mail recovered as restrictions lifted.
Free cash flow in the quarter rose 51.9% €919m, despite a 58.0% increase in capital expenditure. Net debt rose from €12.9bn at the start of the year to €13.3bn.
Full year operating profits is now expected to be over €7.0bn, despite a pandemic related €200m one off staff bonus. Free cash flow is expected to come in at €3.2bn.
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 disclosure for more information.
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