Future Profitability Will Decline Due To Mail Business Downturn And Competitive Pressures

Key Takeaways

• Structural decline in Mail business and increased competition in Parcel & Logistics pose risks to future revenue growth and net margins.
  
• Economic challenges in Türkiye and costs from Retail & Bank transformations could create earnings volatility and impact profitability.
  
• Strategic international positioning and investment in green initiatives support Österreichische Post's sustainable growth driven by strong demand and e-commerce expansion.

Catalysts

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

• The structural decline in Austrian Post's Mail business due to electronic substitution and decreased elections-related revenue is expected to result in a reduction in Mail revenue, impacting overall future revenue growth.
  
• The challenging economic conditions, particularly in Türkiye, with volatile currency exchange rates and hyperinflation, present financial challenges that could potentially impact net margins and earnings, creating earnings volatility.
  
• Increased competition from large international e-commerce platforms could compress net margins as Austrian Post may face pricing pressures in capturing and maintaining market share in the Parcel & Logistics segment.
  
• A significant portion of the volume growth in the Parcel & Logistics segment is attributed to the influx of Chinese e-commerce, which may not sustain its initial high growth rate, potentially impacting future revenue growth and profitability.
  
• Ongoing transformations and migrations in the Retail & Bank segment, such as the core banking system upgrade, continue to incur costs that might weigh on profitability, potentially affecting net margins until fully realized benefits from integration are achieved.

Österreichische Post Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Österreichische Post's revenue will decrease by 0.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 4.8% today to 4.5% in 3 years time.
• Analysts expect earnings to reach €138.8 million (and earnings per share of €2.06) by about February 2028, down from €145.0 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 16.9x on those 2028 earnings, up from 13.9x today. This future PE is greater than the current PE for the GB Logistics industry at 13.9x.
• 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 6.14%, as per the Simply Wall St company report.

Österreichische Post Future Earnings Per Share Growth

Risks

• Strong revenue growth across all segments: The company reported a 13.6% revenue growth over the first nine months, with the Mail, Parcel & Logistics, and Retail & Bank segments all showing revenue increases, suggesting robust demand that could positively impact future revenues.
  
• Strategic position in international markets: Operating in 13 countries with 11 own delivery networks allows the company to reach around 150 million citizens, indicating potential for continued expansion and revenue growth.
  
• Parcel & Logistics growth driven by e-commerce: The strong performance of the Parcel & Logistics segment, particularly with double-digit growth, highlights the potential for sustained revenue improvement due to the rising trend in e-commerce.
  
• Retail & Bank segment showing strong growth: The Retail & Bank segment, including the bank99 initiative, showed a 23.1% increase in revenue, driven by favorable interest rates and market growth, suggesting potential for further earnings enhancement.
  
• Green transformation investment: Significant investment in green initiatives, such as the expansion of electric fleets, positions Österreichische Post as a sustainable company, potentially leading to cost reductions and improved margins over time.

Valuation

• The analysts have a consensus price target of €29.35 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 €33.7, and the most bearish reporting a price target of just €26.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.1 billion, earnings will come to €138.8 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of €29.85, the analyst price target of €29.35 is 1.7% lower. 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.