Expanding The Parcel Network Into Eastern Europe And Türkiye Will Increase Future Market Share

Key Takeaways

• Product and price reform in the mail division may boost revenue and margins despite declining volumes, stabilizing financial performance.
  
• International parcel network expansion in Eastern Europe and Türkiye offers significant growth opportunities potentially enhancing revenues and market share.
  
• Österreichische Post faces risks from economic recession, declining letter mail volume, exchange rate volatility, competitive pressures, and costly decarbonization efforts potentially impacting margins.

Catalysts

Provides postal and parcel services in Austria, Germany, Southeast and Eastern Europe, Türkiye, Azerbaijan, and internationally.

• The company plans to implement a product and price reform in the mail division, making the economy product the standard, potentially increasing revenues despite declining mail volumes. This could stabilize or improve revenue and margins.
  
• Expanding the parcel network internationally, especially in Eastern Europe and Türkiye, provides growth opportunities that could significantly impact revenues and market share.
  
• The Retail & Bank segment’s focus on reaching breakeven and potential for cross-selling to existing customers could improve profitability and contribute positively to earnings.
  
• Investment in green technologies and the logistic network is expected to reduce costs over time and could enhance net margins as operational efficiencies increase.
  
• The strategy to grow revenues to €4 billion by 2030, with a strong focus on international e-commerce, indicates potential long-term earnings growth and could positively impact valuation.

Österreichische Post Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Österreichische Post's revenue will grow by 3.3% annually over the next 3 years.
• Analysts are assuming Österreichische Post's profit margins will remain the same at 4.4% over the next 3 years.
• Analysts expect earnings to reach €151.2 million (and earnings per share of €2.24) by about May 2028, up from €137.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.0x on those 2028 earnings, up from 14.6x today. This future PE is greater than the current PE for the GB Logistics industry at 14.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

Österreichische Post Future Earnings Per Share Growth

Risks

• The Austrian economy is experiencing its longest recession since World War II, which could negatively impact consumer spending and result in decreased revenue for Österreichische Post.
  
• While e-commerce continues to grow, the ongoing decline in letter mail volume due to digitalization and consolidation in the retail sector could adversely affect revenues and net margins in that segment.
  
• The company's reliance on favorable exchange rates and inflation in Türkiye for revenue growth poses a risk; this volatility may not continue, potentially dampening future earnings.
  
• Despite Österreichische Post's efforts in expanding its parcels network across multiple countries, intense competition and reliance on Asian e-commerce platforms may pressure margins and revenue growth in an unpredictable market landscape.
  
• The ambitious decarbonization efforts, while positive in the long-term, involve significant CapEx, which may strain net margins and cash flow in the short term if operational efficiencies are not realized as planned.

Valuation

• The analysts have a consensus price target of €29.825 for Österreichische Post based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €34.0, and the most bearish reporting a price target of just €25.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.5 billion, earnings will come to €151.2 million, and it would be trading on a PE ratio of 16.0x, assuming you use a discount rate of 6.7%.
• Given the current share price of €29.75, the analyst price target of €29.82 is 0.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.