CTTOF - Correios De Portugal: SotP No-Brain Valuation And Major Growth In Express Business

2024-07-19 09:59:27 ET

Summary

• Correios de Portugal sold a stake in its bank business, valuing it at 287 million EUR, and with a private transaction has valued its real estate at 153 million EUR.
• It has a major growth driver in its express business that is being hidden by comp effects in other segments and the novelty of its profit contribution.
• Whether normalising or not, the massive growth of the express business helped by a Spanish logistics investment will have a full contribution to FY 2024 and drive growth.
• Beyond that growth is secular as ecommerce is highly underpenetrated in Portugal and rather underpenetrated in Spain.
• The dividend is good too, and the shareholder consideration of the management should mean that the income proposition will also grow.

Correios de Portugal ( OTCPK:CTTPY ) is the public post company of Portugal and a growing private parcel express company with a pan-Iberian presence. Several of its businesses have commanded valuations with recent precedent transactions that rival the market cap of the company, and allow for a compressed valuation on the residual post business and the more exciting express and parcel business that has ecommerce tailwinds and is the clear profit and growth driver of the business, with it suddenly commanding the largest share of EBITDA together with the growing retail banking segment in the Q1 2024 results.

The very recent emergence of this business as a profit and growth driver is likely why the growth story of CTT goes ignored. Iberia, meaning both Portugal and Spain but especially Portugal, lags in terms of ecommerce penetration, so Correios has an unusually long growth runway with respect to other European ecommerce plays. With a strong likelihood that this segment's growth continues, already commanding as much as 33% of Correios' recurring EBIT, it will soon be defining the trajectory of the company's overall profits. It has also proven to be a great investment sink, with investments in a new logistical facility in Spain rocketing that geography's revenues by more than 100% YoY as of the Q1. These investments exploit the business' inherent operating leverage and other scale economies....

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