Fit For Growth Program Will Improve Operational Efficiency By 2026

Key Takeaways

• Operational enhancements and strategic focus, like Fit for Growth and geographic expansion, are poised to boost efficiency, margins, and revenue growth.
  
• Initiatives in Express and Supply Chain, combined with a share buyback program, are expected to elevate profitability and shareholder value.
  
• Volatile macroeconomic conditions, trade barriers, and sector-specific pressures threaten Deutsche Post's revenue growth and profitability, amid structural and labor cost challenges.

Catalysts

Operates as a mail and logistics company in Germany, rest of Europe, the Americas, the Asia Pacific, the Middle East, and Africa.

• The introduction of the Fit for Growth program, targeting a run rate impact of more than €1 billion by 2026, is expected to bring operational efficiency, positively impacting net margins and earnings.
  
• The structural improvements and strong signings in the Supply Chain division, reaching more than €1 billion in EBIT, indicate continued top-line growth and enhanced profitability.
  
• Strategic focus on fast-growing geographies and sectors less impacted by trade barriers, especially with geographic tailwind programs, is anticipated to drive revenue growth.
  
• The ongoing transition within Express to higher-value shipments, particularly in Life Sciences and Healthcare, alongside improved cargo mix and capacity management, is likely to result in increased revenue and profitability.
  
• The extended share buyback program, increased by €2 billion, suggests a commitment to enhancing earnings per share and shareholder value, utilizing the company's robust cash flow generation.

Deutsche Post Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Deutsche Post's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.9% today to 4.5% in 3 years time.
• Analysts expect earnings to reach €4.2 billion (and earnings per share of €3.74) by about March 2028, up from €3.3 billion 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 13.5x on those 2028 earnings, down from 14.8x today. This future PE is greater than the current PE for the GB Logistics industry at 9.5x.
• Analysts expect the number of shares outstanding to decline by 2.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.65%, as per the Simply Wall St company report.

Deutsche Post Future Earnings Per Share Growth

Risks

• The company's operations are heavily exposed to the macroeconomic environment, which remains volatile and could negatively impact both revenue growth and earnings.
  
• Trade barriers, such as the ones experienced with the Brexit and other global trade policy changes, can adversely impact trading volumes, affecting revenue and profitability.
  
• Declining mail volumes and structural issues in the Post & Parcel segment could result in reduced revenue if not offset by sufficient growth in other areas.
  
• The effort to reduce headcount, especially in Germany, indicates structural challenges, and failure to effectively manage labor costs could reduce net margins.
  
• Competitive pressures in key sectors, particularly in Express and supply chain management, could limit the ability to maintain or grow market share, impacting revenue and earnings potential.

Valuation

• The analysts have a consensus price target of €44.639 for Deutsche 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 €60.0, and the most bearish reporting a price target of just €33.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €93.4 billion, earnings will come to €4.2 billion, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 5.6%.
• Given the current share price of €42.85, the analyst price target of €44.64 is 4.0% 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.