Deutsche Post AG (DHL) NPV

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Revenue rose 19.8% to €22.6bn in the first quarter, partly reflecting favourable exchange rate movements. Higher expenses meant operating profit rose more slowly, up 13% to €1.9bn.

There was growth in all but two divisions, which were held back by very strong comparisons this time last year.

The shares were unmoved following the announcement.

Our View

Deutsche Post may well be the dominant player for delivering letters and parcels in Germany, but we're in the midst of a structural decline in the letters market that's been accelerated by the pandemic.

Good news then that Deutsche Post's German revenue is split between parcels and letters. But it is far more than just a national postal service. Domestic post and parcels accounted for just 21% of group profits in 2021. Instead, it's the global parcels and logistics businesses that really sets it apart, and which is worth investors' attention.

DHL Express is the world's largest provider of premium, cross-border parcel and document delivery services, and its 'Time Definite' product has been a star performer in recent years. Deutsche Post's other divisions provide additional parcel, freight brokerage and outsourced logistics services in hundreds of countries around the world.

The resumption of global trade flows is generally good news for the group, and we've seen the benefits feed through to results. Growth from here is expected to be modest, not monumental, but there are some drivers working in the group's favour. E-commerce-related sales made up over 25% of group revenue last year, which is an area we can see growing further as lockdown shifted many shoppers online. And the DHL business segments are set up to capture every leg of the journey, from international shipping, to fulfilment and last mile delivery.

But disruptions aren't fully in the rear-view mirror yet. Grounded flights last year meant air cargo capacity was tight, leading the group to invest in expanding its own fleet of aircraft. And we don't yet fully know what impact the war in Ukraine will have on the global transportation market. We expect it'll cause a further tightening of available cargo space.

The group's valuation has come down somewhat this year, which makes the prospects more attractive than they have been in the past. The prospective dividend yield is well covered and now at a level that's worthy of attention, plus profits should steadily grow in the low single digits over the next few years.

That said, we worry that this is just about as good as it gets for Deutsche Post - with recovering corporate demand and e-commerce plateauing after a golden era. It's hard to see how the group can make rapid progress from here.

The HL Share Research team is ceasing covering of Deutsche Post. This is the last update and house view HL will produce on this stock. You can still find out more about our thoughts on wider industry and market trends by signing up to our Share Insight email.

First Quarter Results

Higher expenses were driven by increased transport and staff costs.

Express revenue, excluding the effects of exchange rates, rose 12.5% to €6.4bn. Shipment volumes fell, but there was an overall revenue increase in all geographies. Operating profit rose 1% to €971m.

Global Forwarding Freight revenue rose 51.2% to €7.4bn, with Global Forwarding far outpacing Freight. Improved US/Europe trade lines resulted in a 3% increase in air freight volumes. Operating profit more than doubled to €601m.

Strong performances from Retail, Life Sciences & Healthcare and Consumer, helped Supply Chain revenue rise 13.3% to €3.8bn. The division is seeing both new business, and contract renewals, while online business is also doing well. Operating profit of €205m is higher than last year's €167m.

eCommerce Solutions revenue fell 0.6%, compared against the pandemic spikes in demand this time last year. Revenue was €1.4bn - and excluding exchange rate fluctuations, this was down 4%. Lower volumes and revenues in the Business-to-Consumer (B2C) division meant operating profit fell to €102m, from €230m.

"Extraordinarily" high shipment volumes in the prior-year meant Post & Parcel Germany revenue fell almost 7% to €4.2bn. Reduced efficiency caused by the decline meant operating profit fell 36.2% to €355m.

Net debt stood at €13.7bn at the end of March, compared to €12.8bn at the start of the year.

Capital expenditure included additional investments in renewing the Express division's intercontinental aircraft fleet. Advance payments were made for a new order of six additional Boeing B777 freighters.

For the full year, the group plans to increase capital expenditure, excluding leases, to around €4.2bn. Payment for the previously announced acquisition of Hillebrand Group, means there was a free cash outflow of €197m.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

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