TNTFF - PostNL Sees Improved Macroeconomic Indicators

2023-05-16 16:21:01 ET

Summary

• PostNL parcel volumes were better than expected.
• Improved revenue and volume-mix led to higher parcel revenues.
• On the cost side, things remain challenging.

I have covered PostNL ( TNTFF ) stock in the past, and I wasn't particularly impressed with the company. PostNL had previously positioned and invested to handle higher volumes of packages. But due to inflation and macroeconomic uncertainty, package volumes were below expectations and inflationary costs pressured the bottom line as well while it was difficult to quickly take out the cost of the system to handle higher volume. In this report, I will be analyzing the first quarter results to see whether things are improving for the small Dutch freight and mail specialist.

PostNL Volumes Better Than Expected

While I certainly would not characterize the results as good, they were better than expected. In some way, you could say that given the uncertainty and what PostNL had planned for previously, the results were satisfactory. Revenues declined by 3% while normalized EBIT dropped 78% and free cash flow went from positive €52 million to negative €31 million. Those are not numbers you would like to see as an investor in the business.

Parcel revenues were €561 million or 71.6% of the revenue stream compared to €554 million in the same quarter last year when it represented 68.7% of the revenues. While volumes dropped 6.5%, better pricing and volume mix led to a 1.2% increase in revenues, which definitely is a strong sign. Nevertheless, EBIT dropped by more than 70% due to continued inflationary costs. In February, the company also made a one-time payment of 1.5% of the annual salaries which is part of the PostNL CLA, which brought a €24 million headwind on organic cost. I would say this is as good as it gets in terms of controlling costs.

The mail segment saw nearly 11% lower volumes and the revenue decline was in line with that, but again EBIT took a harder hit being almost 78% lower.

PostNL Confirms Outlook

For 2023, PostNL has confirmed its outlook and that's an outlook that as expected is significantly weaker than the results seen in 2022. Normalized EBIT at the midpoint replicates the 2022 performance, while income and free cash flow are expected to be lower than last year. The recovery is expected to materialize in 2024 and beyond, which I believe doesn't make PostNL a very compelling investment, even more so if you consider the dividend policy. The positive is that the first indications from macroeconomic pressure easing are there, with flat volumes in Parcels and Mail being down 8% to 10%. The focus will mostly be on how the unit pricing develops in Q2 and how impactful cost control will be.

Is PostNL Stock A Buy?

I processed the numbers for PostNL and don't see a strong reason to buy. Improvements should be upcoming in 2024, but PostNL results fluctuate heavily. Compared to the industry valuation, PostNL has upside, but realistically, PostNL has never traded even close to that enterprise multiple, and I'm also not convinced that, given the structure of the company in terms of size and innovation, there's a major reason to assume industry median valuation is justified. Based on this assessment, I see no major upside for the stock that would make the stock a compelling buy. At most, I would rate it a hold.

Conclusion: PostNL Navigates Tough Climate

First quarter results were better than expected and macroeconomic indicators are improving according to PostNL, but major parts of its improvement in cost efficiency should become visible in 2024. However, with the projections three years out that I used, I don't see a compelling investment opportunity here as PostNL is a relatively small player, and in the time I lived in The Netherlands where PostNL is active, I have not seen them innovate. No notable innovation to speed up deliveries and no notable innovation to provide last-mile delivery solutions. The only advantage PostNL might have is that rapid and flexible delivery services in The Netherlands have an extremely hard time surviving as scaling often proves to be more challenging than thought.

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