Davy Research |
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DSV
(DSV DC)
Reports Q1 results; volumes below market in Sea but Road robust; FY guidance maintained
27 April 2012
Stephen Furlong
| Closing Price: | DKK12020 | Rating: | Outperform | 22/03/12 |
FACTS: DSV has reported (April 27th) Q1 results. There will be a conference call at 11.00 at +44 207 509 5139 (UK) and +1 718 354 1226 (US).
ANALYSIS: Company guidance for 2012 was maintained. This is for gross profit of DKK 10,000-10,500m or 2-7% growth (Davy: DKK 10,214m) and operating profit before special items of DKK 2,500-2,700m or 3-11% growth (Davy: DKK 2,641m). If no major acquisitions are made, the group is expected to have capacity in the range DKK1,500-2,000m for distribution of dividends and share buy-backs. A new DKK 400m buy-back programme was launched today. For 2012, DSV assumes freight volume growth of 0% (air), 4-5% (sea), 1-2% (road) and 1-2% (solutions).
We assumed EBITA of DKK 561m (+5.1%) in Q1 with gross profit of DKK 2,443m. Gross profit came to DKK 2,435m (2011: DKK 2,372m), corresponding to a gross margin of 22.5% (2011: 22.0%) Operating profit before special items (EBITA) came to DKK 555m (2011: DKK 534m), corresponding to an EBITA margin of 5.1% (2011: 4.9%). Diluted adjusted earnings per share were DKK 2.01 for the period (2011: DKK 1.63) and for the 12 months to March 31st 2012, DKK 8.21 (2010/11: DKK 6.70).
On a rolling 12-month basis, return on invested capital, including goodwill and customer relationships, was 19.6%.
By division, Sea freight volumes dropped by 3% below market growth of 3-4% and Air freight volumes by 4%, in line with the market. The company indicates that initiatives will be launched to gain market share, notably in the Sea segment. Gross margin in Air and Sea came to 22.6% against 20.7% for 2011. EBITA was in line with last year (EBITA DKK 298m, Davy DKK 314m, consensus DKK 304m). According to the company, freight volumes still show the most positive trends in the Asian and South American growth markets, while European imports — Southern European imports in particular — declined.
The Road division saw regional differences with weak but positive growth in Northern and Eastern Europe but most of Southern Europe experiencing declining freight volumes. Road freight volumes increased by 3%. Gross profit margin was 19% compared with 18.7% last year. EBITA increased by 22.2% through organic growth (EBITA DKK 220m, Davy DKK 182m, consensus DKK 191m).
The Solutions division was impacted by Southern Europe and price pressure on contracts. Gross profit was DKK 351m (2011: DKK 369m) and EBITA was DKK 55m (DKK 69m last year, Davy DKK 70m, consensus DKK73m).
DAVY VIEW: We consider DSV a high-quality company with 21% EPS CAGR achieved since 1991. Buyback programmes, efficiency gains and volume growth should lead to double-digit (20% CAGR) EPS growth to 2014. This will likely be exceeded as new buyback programmes are announced. DSV has industry-leading margins in both the freight forwarding and contract logistics businesses. The group's DKK 120m efficiency programme ('Project Operational Excellence 2012') should further improve the conversion ratio and illustrates the company's focus on bottom-line profitability. DSV's medium-term targets are to achieve EBITA margins of 7%, a conversion ratio of 30% and ROIC of 25% (2011: EBITA margin of 5.6%, conversion ratio of 24.7% and ROIC of 19.7%).
We will review our model following the conference call but are unlikely to change headline numbers. We would be buyers on any share weakness.