Deutsche Post – Headline Q2 05 Figures Beat Estimates But Underlying Results Fall Short
Deutsche Post – Headline Q2 05 Figures Beat Estimates But Underlying Results Fall Short
Analysis by Bear Stearns
P:LibraryDeutsche PostDPWN 1st half 04 financial_highlights.pdf
Deutsche Post – Q2 2005 Results
(Deutsche Post, DPWGn.DE, €20.42/share @ mkt close 27/7/05, Peer Perform)
Headline Figures Beat Estimates, But Underlying Results Fall Short
2Q EPS of €0.43 includes €0.12 of one-off benefits. At €0.43 (+27% yoy), EPS appeared to beat both our low-end €0.35 estimate and consensus €0.41. However, €172mn of one time pre-tax benefits supported the quarter’s result (+€129mn provision reversal, -€11mn integration costs, +€54mn gain on disposal).
Express better than our low end estimate. Express delivered underlying EBIT of €137mn, the same as in the prior year, vs. our €98mn estimate. The DHL Americas loss was modestly better than expected while Europe delivered most of the upside, largely due, we suspect, to STAR benefits (€160mn in the quarter). We note that European revenue growth of 2.4% in Q2 was an improvement on shrinkage of 3.1% in Q1. While better, we suspect this growth rate still falls short of those of chief competitors.
Eliminations/Other and Mail line items drive underlying downside. We look to today’s conference call for more detail regarding deterioration in these line items. The Mail result alone appears weak in light of the benefit of an extra operating day in the quarter. Mail weakness appears broad based within core businesses (mail communications volumes were down 2.2% yoy while direct marketing volumes were flat, falling short of our expectations).
Solid results from other units; Guidance Reiterated. Logistics and Postbank combined modestly beat our expectations. Reiteration of existing group EBITA guidance for 2005 (minimum €3.6bn) is a positive. However, we are focussed on the extent to which guidance is dependent upon net one-off gains in H2:05. We note that the announced dividend increase was expected after the reduced cash tax guidance communicated earlier this year.
Long-term Express story remains compelling, but weaker Mail raises new questions. We continue to believe that growth opportunities in the US market are compelling over the long-term. Additionally the Express result in Q2 implies that the DHL Americas operating loss target of €300mn for this year is still achievable. Even so, operational risks remain high. What is new is the apparent weakness in Mail, which we did not expect. We continue to see the shares as fully valued in the near-term and would only recommend them for extremely long-term oriented investors. Our fair value is €19.80 – the shares currently trade at 9.9x our 2006 EPS estimate. Deutsche Post is rated Peer Perform.
