Parcel Volume Expansion May Struggle To Lift Margins Yet Still Support Long-Term Upside

Catalysts

About InPost

InPost operates automated parcel machines and complementary delivery solutions for e commerce and parcel logistics across Poland, the Eurozone and the U.K.

What are the underlying business or industry changes driving this perspective?

• Parcel volumes are growing rapidly across Poland and Western Europe on the back of rising e commerce penetration and structural shifts to out of home delivery. However, the heavy upfront APM rollouts and integration expenses in markets like the U.K. and Eurozone risk keeping adjusted EBITDA margins below management ambitions for longer and could delay operating leverage in group earnings.
• International revenue already represents more than half of group sales and B2C volumes now exceed 50% of Eurozone volume. The complexity of integrating acquisitions such as Yodel and Sending, including network overlaps and mixed to door exposure, may cap margin expansion and restrain net profit growth despite strong top line momentum.
• Adoption of lockers and the mobile app is deepening consumer engagement and frequency of orders in multiple markets. Any slowdown in converting PUDO volumes to APMs or difficulty sustaining high utilization rates as the network densifies could dilute unit economics and limit future improvements in group operating margins.
• There are long term tailwinds from consolidation in European parcel markets and smaller players exiting. At the same time, intensifying competitive responses from large incumbents and new alliances in Poland and other key geographies could force InPost to moderate repricing and invest more in quality, weighing on revenue yield per parcel and constraining margin upside.
• InPost benefits from strong free cash flow generation in Poland to fund international APM deployment. Elevated leverage following large M&A transactions and continued CapEx needs may restrict financial flexibility, making it harder to sustain high growth investments without pressuring future earnings and net margins if cash conversion in newer markets underperforms expectations.

Assumptions

This narrative explores a more pessimistic perspective on InPost compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming InPost's revenue will grow by 13.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 6.6% today to 8.5% in 3 years time.
• The bearish analysts expect earnings to reach PLN 1.7 billion (and earnings per share of PLN 3.41) by about December 2028, up from PLN 894.1 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as PLN2.8 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 18.8x on those 2028 earnings, down from 23.4x today. This future PE is lower than the current PE for the NL Logistics industry at 22.2x.
• The bearish analysts expect the number of shares outstanding to grow by 0.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.68%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The heavy, ongoing capital expenditure required to support rapid international APM rollouts and Yodel integration, alongside rising lease liabilities and higher use of the revolving credit facility, could keep leverage elevated and constrain balance sheet flexibility, ultimately weighing on earnings growth and free cash flow.
• Operational setbacks during the U.K. integration, including the current pause of Phases 2 and 3, extra manual resourcing due to underinvestment in automation and persistent restructuring costs, may prolong the period of subdued profitability and delay the path to attractive EBITDA margins and net profit in this key growth market.
• The shift of more than half of group revenue to international markets, where Eurozone margins are materially below Poland and the U.K. margin is low, means any slowdown in APM adoption, lower PUDO to locker conversion or intensified competition in Western Europe could dilute group margins and cap overall earnings expansion.
• Increasing competitive pressure from large incumbents and new alliances in Poland, together with aggressive moves by major platforms like Allegro to steer volumes into their own networks, could limit InPost’s ability to reprice, slow volume gains and erode its high domestic profitability, impacting revenue growth and net margins.
• Reliance on maintaining very high APM utilization rates across markets, including 80% in the U.K., creates a risk that any sustained normalization of e commerce growth, weaker peak seasons or overdeployment of lockers will reduce network efficiency, driving up unit costs and compressing EBITDA margins and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for InPost is €11.99, which represents up to two standard deviations below the consensus price target of €16.15. This valuation is based on what can be assumed as the expectations of InPost's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.37, and the most bearish reporting a price target of just €11.99.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be PLN19.8 billion, earnings will come to PLN1.7 billion, and it would be trading on a PE ratio of 18.8x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of €9.92, the analyst price target of €11.99 is 17.3% 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.