Deutsche Post: delivering the goods

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When a company’s shares double in 18 months, the inevitable question arises: can they keep up the pace? The market had doubts about Germany’s Deutsche Post earlier this year, when its stock price stalled. But solid 2012 results and reassuring guidance for the current year, in spite of the difficult economic environment, seemed to put matters back on track on Tuesday; the shares rose 5 per cent.

In truth, this is a group of two halves. The German postal business is a mixed bag, with letter mail in structural decline, but parcels volumes picking up as online shopping expands. These trends roughly balance each other. As a result, both revenue and underlying earnings before interest and tax on the postal side were flat last year, at €14bn and €1bn-plus respectively. Expect little change ahead.

The more exciting part of Deutsche Post, however, remains its DHL unit, which encompasses express delivery, freight forwarding and logistics. Here, revenues rose 7 per cent in 2012, while ebit advanced by one-fifth to over €2bn. DHL Express remains the star, now taking a third of its revenues from Asia, compared with a quarter in 2009, although there were margin improvements in the forwarding and supply chain units too. The collapse of the TNT-UPS merger, which could have created a powerful competitor, will not hurt.

So with Deutsche Post’s 2015 ebit goal of €3.4bn-€3.6bn increasingly credible, the shares do not look expensive in spite of their gains. The enterprise value to 2013 earnings before interest, tax, depreciation and amortisation ratio is well below 6 times, compared with almost 9 times at UPS. For income-minded investors, there is also a 4 per cent dividend yield – and, while one-off items pushed net debt to €2bn last year, underlying free cash flow covers this. There is every reason to think the stock will continue to travel.

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