Davy Research |
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Deutsche Post DHL
(DPW GY)
Capital markets day outlines growth plans; retaining 'outperform' rating with €16.50 price target
25 May 2012
Stephen Furlong
| Closing Price: | 1324c | Rating: | Outperform | 26/01/11 |
FACTS: Deutsche Post DHL (DPDHL) outlined its growth plans at its capital markets day in London yesterday (May 24th).
ANALYSIS: The capital markets day was titled "simply growing". Clear target numbers were outlined, including for group EBIT to increase to €3.35-3.55bn by 2015, more than €1bn above 2011 levels. This is in line with stabilisation in the Mail division of at least €1bn and annual compound growth of 13-15% in the DHL divisions to between €2.7bn and €2.9bn (Davy forecasts for 2015 are for group EBIT of €3.511bn, including €1.069bn in Mail and €2.824bn in the DHL divisions). Plans were also outlined to reduce the corporate center costs from around €400m to about €350m by 2015. In terms of finance strategy, the dividend payout ratio of 40-60% of consolidated net profit was confirmed as was the focus on maintaining a BBB+ rating and on cash generation. DPDHL should be transitioning to high cash flow generation by 2014-2015 with any excess liquidity used for pension funding and share buybacks and/or extraordinary dividends.
The Mail division's strategy focused on parcels/digital growth and optimisation in Mail with the former benefiting from e-commerce growth and the latter from a number of cost and flexibility initiatives and the potential (for the first time in 15 years) to consider modest price rises under the new price cap formula. Investments in this division included €420m in mail sorting equipment and €750m (until 2014) to modernise the parcel network.
In DHL Express, the focus is on improving margins towards those of the industry leaders to achieve market share growth in 2012 and to take advantage of targeted growth, particularly in emerging markets. Operating margin (the goal is to strive for c.10%) will be further enhanced by continued strong volume growth, systematically expanding the express aviation network and continuing to improve efficiency – the focus is very much on speed, quality and the TDI (Time Definite International) product. Our sense is that margin enhancement will result partly from price, from operating leverage as volumes grow and overheads are held and from productivity/efficiency improvements. In DHL Global Forwarding/Freight, the focus is on profitable growth and further improving its strong market position in ocean freight. The division is planning to implement a transformation programme, 'New Forwarding Environment', with increasing efficiency through new IT systems and greater automation to boost productivity and further improve margins through volume and gross profit improvement (in particular GP/EBIT enhancement). Full roll-out of the new IT system is expected by 2014/2015. DHL Supply Chain, which concluded contracts with volume >€1bn for the fourth consecutive year, is very well positioned to benefit from the market trends of outsourcing, global markets and the need for comprehensive solutions.
DAVY VIEW: DPDDL continues to be very well positioned in the growing logistics space, with a focused strategy and execution plan with clear targets and levers to achieve outperformance. We continue to rate DPDHL 'outperform' with a €16.50 price target. The stock should gradually re-rate as it delivers on its 2015 business plan.