TNTFF - PostNL: Not Our Cup Of Tea

• With the same P/E ratio, we prefer Deutsche Post.
• Inflation weighs on PostNL outlook.
• Lower guidance for 2022.

Today we are back to comment about PostNL N.V. (TNTFF). Last time, in our initiation of coverage, we presented six negative key takeaways . Cross-checking the company's latest results , we can clearly say that we anticipated some of them. Our main concerns were the following:

1. PostNL was losing market share versus competitors such as Deutsche Post (DPSTF) and Royal Mail (ROYMF). However, we emphasized that the company was the top leader in the Netherlands which is an area that is not growing in volumes and rely upon higher selling price. Indeed, looking at the quarterly performance, PostNL lost 7.4% in volumes combined with a negative price/mix further deteriorated PostNL's underlying profitability.
2. When we were looking at the CAPEX growth and compared it to a few other players, we clearly mentioned that PostNL was behind on the investments. In the quarter, the company announced additional CAPEX requirements (not only for the digital transformation), and consequently, over the long-term horizon, the FCF will be impacted.
3. We were not surprised to see the Parcel division down in volume - this is a secular declining trend. However, last time, we anticipated how transportation costs were going to impact PostNL's profitability. We mentioned also higher labor costs. Once again, we were right and if we see EBIT's evolution, PostNL recorded a very negative performance. Numbers in hand, top-line sales decreased by 11% reaching €746 million . And as anticipated, the group's EBIT was considerably down and stood at €10 million compared to the €63 million recorded in the same period one year ago. In the press release, the CEO blamed : " an unprecedented high level of inflation resulted in rising fuel and labour costs".

Conclusion and Valuation

What was the real disappointment was PostNL's profit warning. In the current environment, the Dutch postal operator expects 2022 EBIT in a range between €145 and €175 million compared to €170 to €210 million previously stated. In the presentation, we can also see that FCF is expected to be in the lower range (again not a surprise). The group also expects a decrease in parcel volume, which we believe is already being anticipated by the market.

Even if the first buyback tranche was completed, our internal team believes that the company will need to prioritize CAPEX investments. In line with the indication, PostNL announced an interim dividend per share of €0.14. Taking into account the latest company development and the downgraded guidance, we value PostNL at €2.8 per share rating again the company with a neutral target. We prefer Deutsche Post which is currently trading with the same P/E ratio but with performance well above the Dutch postal operator.

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