During our coverage launch, we highlighted how the Global Forwarding & Freight division was DHL’s new cash cow. In our analysis of the first quarter results, we explained how “DHL will maintain this new normal and how the the management has always been very cautious and we were setting new expectations above the objectives”.
Last week, the world’s leading logistics group Deutsche Post (OTCPK:DPSTF) released its half-year figures and after analyzing the quarterly results, we are even more confident in our investment thesis. Just looking at the snapshot below, we note a strong performance from the DHL Global Forwarding & Freight segment. Now let’s dive into the accounts.
In the second quarter, the German logistics operator increased its sales by almost a quarter to reach a good 24 billion euros. Of this amount, 2.3 billion euros remained in the form of operating profit before interest and taxes signatures up 12% compared to the previous year. EPS also reached €1.2 over the period. Cross-checking Wall Street analyst estimates, the average consensus was for 21.8 billion euros in revenue, EBIT of 2 billion euros and EPS of 1.01. This was a wide range for Deutsche Post AG. Regarding the performance of the division, as already noted in the first quarter, the lion’s share of profits came from the freight division. At the same time, private customer activity, which is driven by online shopping, has normalized as people are no longer ordering goods over the internet as much as they did a year ago when COVID-19 measures limited our life. This is not a surprise and the management expected it as well. During the conference call, the group stresses that the rise in energy costs is well under control, even if the EBIT margin is down to 9.7% against 10.7%. Despite this, in the end, Deutsche Post made a net profit of nearly 1.5 billion euros, up 15% more than the same period last year.
The performance of the DHL Global Forwarding & Freight division was even more notable as volumes were lower than the same period a year ago. This is due to the high transport prices in international business with corporate customers.
Conclusion and evaluation
The company’s activity seems little or not at all affected by economic concerns. After six months, the EBIT already amounted to 4.5 billion euros. For the current year, management confirmed its forecasts as well as the outlook for 2024. The results were better than analysts had expected.
On valuation, as we can see below, Deutsche Post is trading at the lowest P/E ratio multiple in its history. In the freight business, this positive result is also confirmed by the results of Deutsche Lufthansa and Air France-KLM. Once again, we reaffirm our buy target by valuing Deutsche Post with a DCF model using a long-term EBIT margin of 11% and a WACC of 7.6%. Thus, we obtain a target price of €62 per share. The risk paragraph is also included in our previous publication.