SEVA_ schreef op 29 januari 2022 07:14:
PostNL: Significant Upside Remains
Jan. 28, 2022 10:46 AMAMZN, DPSGY, DPSTF
Summary
PostNL Parcel is creating significant value for shareholders.
The ROIC in Parcel is approaching 20%.
I think PostNL's timid valuation and duopoly in Parcel continue to make the stock's risk/reward attractive.
Post.nl Van At Amsterdam The Netherlands
Robert vt Hoenderdaal/iStock Editorial via Getty Images
As my readers may know I have extensively covered PostNL (OTCPK:TNTFF) (OTCPK:PSTNY) in the past. I was highly optimistic about the undervaluation of this business during the first months of the COVID pandemic when the stock surged from €1 to €3+.
Cheap
The bull case on PostNL is quite simple. E-commerce is expanding rapidly and PostNL the biggest parcel delivery platform in the Benelux is a logical beneficiary.
PostNL expects ttm normalised EBIT to come in between €280 million and €310 million. Consequently, I estimate the ROIC to be approximately 10%+. But I think throwing all assets on one pile is unfair. Most - if not all - of PostNL's value is derived from the parcel platform. I estimate PostNL's parcel ROIC to be just below 20%; that's really good especially at this valuation. At an enterprise valuation of approximately €1.9 billion PostNL is selling at ~8 EV/Normalised Parcel EBIT. Not bad for a company with a high ROIC. I do note the significant cyclicity in the PostNL's business, how sustainable are these earnings?
In general, we should always think defensible PostNL's business is. Amazon or Bol.com could potentially provide their own delivery - like Amazon does in the US and Germany. This is a significant risk, especially at a high ROIC. Still, the scale does provide significant operational leverage to a point.
This year the company sells at a significantly lower earnings multiple as mail became incredibly profitable. I personally put very little value to mail, but in the short term, it may be a significant cash flow generator. These cash flows can be invested into parcels at high returns. This is something the market continues to neglect.
I note when PostNL can continue to invest its (mail) cash flows during the next two or three years in parcels at this return PostNL is an easy multi-bagger.
Mail miracle
I believe the market puts a negative value on the mail-side of PostNL. Mid-term the only prudent action management can undertake is to dispose mail to the Dutch government for free and give them the significantly leveraged mail balance sheet too. The reality is that the long-term ROIC of mail remains nothing to write home about since it is probably negative or 0%, and should not be part of a publicly-traded company focused on profits.
I worry whether management will do the sensible thing, the big risk to this stock is that mail will continue to be a drag on the sum of parts. Even the distraction of managing mail, like labour protests, are not time-worthy of PostNL's management. By disposing mail to the Dutch government even at 0, PostNL's balance sheet improves significantly and its consequential long-term ROIC improves. PostNL is not a charity and should not be operating a soon at best breakeven business. For now, the COVID benefits are nice and provide the company with cheap cash flows, but longer-term I worry significantly about this. The history of the CEO shows - in my opinion - she does not always have shareholder priorities first; I note PostNL rejected a bid by Bpost significantly above even the current price in 2016. PostNL management never seemed to take this bid serious and tried to solve the problems. Still, I am hopeful that the Czech billionaire Daniel Kretinsky with a 25%+ stake in PostNL will make management more value-focused.
Amazon risk
Amazon (AMZN) continues to scale aggressively in the Netherlands. Market shares are hard to come by, but by underpricing competition, providing more selection, some estimate that Amazon in a matter of a year is already approaching bol.com in market share. Bol.com is by far the biggest e-commerce website in the Netherlands, or should I say it was.
Amazon's main delivery partner is DHL (OTCPK:DPSTF). Currently PostNL operates a leading market in the B2C parcel market. Mid-term I suspect market shares of DHL and PostNL will converge to similar numbers. Together they will operate a duopoly.
The mid-term risk is Amazon becoming the big market leader in Dutch/Benelux e-commerce, and consequently, the smaller services will suffer. PostNL's margin on parcels from small e-commerce websites and services is significantly bigger than the margin on sales from Bol.com or Amazon.com. For PostNL a diverse landscape of different e-commerce providers is vital to long-term high ROIC.
Exactly this may be at risk. I think it is logical that the market is pricing the stock with relative pessimism as long-term returns are uncertain.
AFM
Takeaway
Still, I think PostNL's timid valuation and duopoly in Parcel continue to make the stock's risk/reward attractive. Disposing PostNL Mail for free mid-term can be a significant value creator as the discount on the sum of parts will decline, partly due to increased confidence in management.