International Expansion And Parcel Lockers Will Strengthen Future E-Commerce Operations

Key Takeaways

• Strategic expansion in e-commerce and parcel lockers supports revenue growth, leveraging strong free cash flow for dividends and investor confidence.
  
• Cost-saving measures and operational efficiency in mail and parcel services aim to enhance margins and future earnings viability.
  
• PostNL faces profitability challenges due to disappointing financial results, operational issues, and rising costs impacting revenue growth and net margins.

Catalysts

Provides postal and logistics services to businesses and consumers in the Netherlands, rest of Europe, and internationally.

• PostNL's focus on cash and balance sheet management has generated strong free cash flow, providing it the ability to pay dividends which could positively impact earnings and investor sentiment.
  
• Strategic initiatives such as expanding international activities and accelerating an out-of-home strategy with parcel lockers are expected to support future revenue growth, particularly in the e-commerce sector.
  
• Operational cost savings, particularly in their Mail division, are being targeted through efficiency measures which could improve net margins over time.
  
• Potential reforms in Universal Service Obligation (USO) boosting mail service efficiency, alongside government support, could improve the financial viability of the mail segment, impacting future earnings positively.
  
• Addressing yield management, client concentration, and improving the operational efficiency of parcel deliveries are expected to address margin pressures, potentially enhancing net margins and overall earnings in the long term.

PostNL Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PostNL's revenue will grow by 2.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.6% today to 2.6% in 3 years time.
• Analysts expect earnings to reach €88.2 million (and earnings per share of €0.16) by about January 2028, up from €18.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €52.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, down from 26.8x today. This future PE is lower than the current PE for the GB Logistics industry at 30.3x.
• Analysts expect the number of shares outstanding to grow by 2.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.39%, as per the Simply Wall St company report.

PostNL Future Earnings Per Share Growth

Risks

• PostNL has experienced disappointing financial results, with normalized EBIT significantly lower than expected, indicating potential issues with profitability and management execution, which could negatively impact earnings.
  
• The Mail segment in the Netherlands saw a significant decline in EBIT due to volume decreases and unfavorable mix effects, highlighting sustainability issues in the business model, which could affect net margins.
  
• The company faces ongoing staff shortages and high illness rates, increasing operational challenges and costs, which may lead to pressure on revenue growth and profitability.
  
• Increasing client concentration and competition in the Parcels segment have led to margin pressures, challenging PostNL's ability to maintain profitability and therefore impacting net margins.
  
• Rising costs in the e-commerce sector, along with the need for further investment in sustainability and innovation, may strain PostNL's financial resources and affect future revenue growth and profitability.

Valuation

• The analysts have a consensus price target of €1.06 for PostNL 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 €1.4, and the most bearish reporting a price target of just €0.84.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.4 billion, earnings will come to €88.2 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 9.4%.
• Given the current share price of €0.96, the analyst's price target of €1.06 is 9.6% 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.