Lex: Deutsche Post
Budgetary pressures on the German government mean that Deutsche Post is likely to issue a second tranche of shares early next year. Should investors be in when the German postman makes his second call?
The company outperformed the Eurotop 300 following the initial listing of 29 per cent of its equity last November, but fell behind the index after DP unveiled its first year’s figures. Performance was in line with expectations but a cautious outlook depressed the share price. Looking ahead, a slowdown in the pace of deregulation of European postal markets will give DP time to catch up with efficiency gains already made by its Dutch rival, TPG.
But management has to justify the aggressive acquisition strategy which has taken it into express deliveries and logistics. Shareholder pressure is likely to put a brake on further deals. The challenge now is to increase margins in these new areas of business, currently less than 2 per cent compared with the 16 per cent return on mail, which still accounts for 74 per cent of profits.
On current performance DP would have done better to buy back shares than splash out on the likes of Danzas and Air Express International.
A further concern is its banking business, which has performed well but which will depend for growth on a switch away from deposit accounts to higher margin products. This is not an area of traditional postal expertise. Strong cash flows mean DP is a good defensive stock in a time of uncertainty. But it will need to work hard to make diversification pay off.
