Parcel Locker Rollout Will Cut Delivery Costs By 30%

Key Takeaways

• Investments in sustainability and labor, plus parcel lockers, enhance efficiency, cut costs, and potentially improve margins and network utilization.
  
• Expansion via an asset-light platform strengthens international growth, while strategic pricing boosts customer value despite potential market share adjustments.
  
• Challenges include declining mail volumes, rising costs, regulatory uncertainties, and client concentration, which pressure margins and threaten profitability without matched revenue growth.

Catalysts

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

• Significant investment in sustainability and labor conditions is expected to enhance PostNL's operational capabilities and potentially improve net margins by increasing efficiency and consumer preference for environmentally friendly practices.
  
• Acceleration in the rollout of parcel lockers is anticipated to reduce delivery costs by approximately 30% compared to home delivery, improving earnings through cost savings and increasing network utilization.
  
• Expansion of international growth opportunities through their asset-light Spring platform in Europe aims to boost organic revenue growth by offering competitive cross-border solutions, targeting an increase in market presence and revenue.
  
• Strategic yield management and pricing strategies focused on large customers are expected to enhance customer value and improve normalized EBIT margins by optimizing volume and value balance despite potential market share loss.
  
• Steps towards transforming the postal service with potential regulation changes and efficiency measures aim to secure savings of up to €200 million over the next few years, impacting positively on the mail division's financial sustainability and potentially reducing net losses.

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 1.8% in 3 years time.
• Analysts expect earnings to reach €63.2 million (and earnings per share of €0.12) by about March 2028, up from €18.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €76.4 million in earnings, and the most bearish expecting €50.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.3x on those 2028 earnings, down from 28.0x today. This future PE is lower than the current PE for the GB Logistics industry at 28.0x.
• Analysts expect the number of shares outstanding to grow by 1.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.23%, as per the Simply Wall St company report.

PostNL Future Earnings Per Share Growth

Risks

• The concentration of clients in the Parcels division has increased, leading to margin pressure, as large customers demand better pricing, negatively impacting normalized EBIT.
  
• There is a structural decline in mail volumes within Mail in the Netherlands due to digital substitution, impacting revenues and increasing the cost per mail item.
  
• Rising labor costs and high illness rates, especially in a tight labor market, are leading to organic cost increases that may affect net margins.
  
• The necessity to invest in sustainability and employee health may raise operational costs and impact earnings, as additional expenditures are anticipated without immediate corresponding revenue growth.
  
• The uncertainty around changes to postal regulation and the potential for a lack of financial support from the government add risks to sustaining the business model, potentially affecting future profitability.

Valuation

• The analysts have a consensus price target of €0.977 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 €1.2, and the most bearish reporting a price target of just €0.82.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.5 billion, earnings will come to €63.2 million, and it would be trading on a PE ratio of 10.3x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of €1.0, the analyst price target of €0.98 is 2.6% 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.