Acquisition Of Schenker And Efficiency Initiatives Will Strengthen Future Market Position

Key Takeaways

• The acquisition of Schenker and focus on operational efficiency are likely to improve revenue growth and net margins through increased market share and cost reduction.
  
• Investments in technology and infrastructure, along with price adjustments in the Road segment, suggest potential for market expansion and offsetting cost inflation.
  
• Challenges include declining margins in Europe, project delays, cost inflation, rising interest costs, and regulatory changes impacting revenue and operational efficiency.

Catalysts

Offers transport and logistics services in Europe, the Middle East, Africa, North America, South America, Asia, Australia, and the Pacific.

• The planned acquisition of Schenker is expected to enhance DSV’s service catalog and operational efficiency, likely boosting future revenue growth through increased market share and cost synergies.
  
• The company's focus on increasing productivity and launching operational efficiency initiatives is anticipated to improve net margins by reducing costs and optimizing operations.
  
• Ongoing investments in the technology and infrastructure sectors, notably through projects like NEOM, signal potential for future revenue growth and market expansion as these projects mature and ramp up.
  
• Planned price increases in the Road segment, which are expected to take effect in early 2025, should help offset cost inflation and improve net margins.
  
• The company’s strengthened market position, particularly in Air and Ocean freight, alongside maintaining high customer satisfaction, suggests potential for continued growth in earnings as they capture additional market share.

DSV Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DSV's revenue will grow by 25.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 6.7% today to 5.8% in 3 years time.
• Analysts expect earnings to reach DKK 18.3 billion (and earnings per share of DKK 85.0) by about December 2027, up from DKK 10.8 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as DKK 11.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2027 earnings, down from 32.6x today. This future PE is lower than the current PE for the GB Logistics industry at 24.7x.
• Analysts expect the number of shares outstanding to decline by 2.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.02%, as per the Simply Wall St company report.

DSV Future Earnings Per Share Growth

Risks

• The road market is currently tough, particularly in Europe, with declining gross profit margins and cost pressures, leading to potential challenges in maintaining revenue and operating margins in the short term.
  
• The NEOM project is experiencing delays and is ramping up more slowly than anticipated, which may impact the expected timing and volume of future revenue contributions.
  
• The company faces cost inflation pressures, including salary and licensing costs from IT and software providers, which may impact net margins and earnings if not effectively managed.
  
• Interest costs have increased due to leasing commitments and rising interest rates, which could affect net earnings if not offset by operational efficiency improvements.
  
• The impact of regulatory changes in the road market, such as changes to mobility package regulations, could disrupt market dynamics and affect DSV's costs and operational efficiency, potentially impacting operating margins.

Valuation

• The analysts have a consensus price target of DKK 1795.0 for DSV 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 DKK 2300.0, and the most bearish reporting a price target of just DKK 1575.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be DKK 313.5 billion, earnings will come to DKK 18.3 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 5.0%.
• Given the current share price of DKK 1500.0, the analyst's price target of DKK 1795.0 is 16.4% higher.
• 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.