PostNL: DHL Is Eating PostNL's Lunch

Aug. 09, 2022 12:36 PM ETPostNL N.V. (PSTNY), TNTFFDPSGY, DPSTF, AMZN4 Comments
Robert Vink profile picture
Robert Vink
1.8K Followers

Summary

  • PostNL's growth is stalling.
  • DHL Parcel is taking significant market share in the Netherlands.
  • PostNL is successfully growing its share in Belgium.
  • The stock's valuation remains pessimistic.

Side View Post.nl Van At Amsterdam The Netherlands

Robert vt Hoenderdaal/iStock Editorial via Getty Images

In this article, I will shortly discuss PostNL N.V.'s (OTCPK:TNTFF, OTCPK:PSTNY) Q2 2022 results and I will use information from 'Autoriteit Consument & Markt' to show that PostNL Parcel is losing significant market share in the Netherlands.

Results

PostNL has published its Q2 2022 results. Year-over-year revenue growth was -11%, normalized EBIT also came out low to a meagre €11 million. Parcel volume grew by 3%, mail volumes declined by 11%. PostNL is obviously not in a great position short-term as it is impacted by inflation, declining e-commerce penetration rates, and a European recession. All these facts make PostNL's stock less attractive short-term.

Still, PostNL's 2022 guidance remains reasonably strong, with annual normalized EBIT at €145 - €175 million and free cash flow at €110 - €140 million. With an enterprise value of €1.6 billion, the company is selling at 11 times EV / normalized EBIT for 2022. This is a particularly interesting valuation as PostNL also has a healthy balance sheet with €577 million in cash and cash equivalents.

One of the reasons why the guidance is strong after a bad quarter is that PostNL Parcel is raising delivery fees right now, showing it believes it can move increased costs to customers. Considering that this year is not particularly great for PostNL due to the above-mentioned trends the valuation is probably quite cheap mid-term.

E-commerce is here to stay and set to benefit from significant growth in the coming decade. After the reopening, most countries saw e-commerce retail sales as percent of total sales decline significantly. The big question for companies like PostNL is where that numbers will end up 5 or 10 years from now.

US Census Bureau

US Census Bureau

Competitive landscape

PostNL Parcel continues to be the market leader in the Netherlands. But with the growth of Amazon - whose primary delivery partner is DHL (OTCPK:DPSTF) - I believe the market share of PostNL is set to decline significantly. DHL is benefitting from the growth of Amazon (AMZN), just like PostNL did in the previous decade together with its partner Bol.com. I think DHL is currently at similar market shares as PostNL - making DHL truly an equal competitor.

Just to show how fast DHL has grown its market position: in 2020, its market share was 15-20%; but in 2021, it became 30-35%. DHL also said in 2021 that order volume grew by more than 100%. I can safely say that DHL has experienced huge growth, and transformed itself in a couple of years from a small competitor to a serious contender.

Market share of parcel companies in the Netherlands (2021)

Market share of parcel companies in the Netherlands (2021) (ACM)

This is not necessarily problematic mid-term as two strong market operators can still achieve high returns on invested capital. But in the short-term - to support its partner Amazon - DHL has invested hundreds of millions into expanding its fulfilling centers. As growth in the parcel market declines, this can lead to a lower return on invested capital across the market as efficiencies decrease.

I do note that PostNL's decision to increase fees is a risky move that can lead to a further decrease in market share. Especially due to the fact that DHL until now has not increased fees. It is common knowledge that e-commerce orders from individuals or small e-commerce websites are the money maker for PostNL. DHL can steal some of these valuable customers by keeping fees low in the coming years. This could be problematic. Thanks to Amazon, DHL now has the logistical operation to seriously compete with PostNL.

Hidden growth story

Inside PostNL parcel is a hidden growth story. PostNL has successfully expanded its market position in Belgium to a market share of 20%. In Vlaanderen the market share is even ~33%, making PostNL the biggest competitor of bpost. PostNL is performing the same trick DHL uses in the Netherlands. PostNL is benefitting from the growth of Bol.com in Belgium and especially Vlaanderen.

Takeaway

PostNL continues to sell at a cheap valuation. But this may be justified as DHL is taking significant market share in the Netherlands, PostNL's main market. I am less positive about PostNL as in my previous articles as the market dynamic has changed. Still, I think it's possible the valuation prices in too much pessimism.

This article was written by

Robert Vink profile picture
1.8K Followers
Robert Vink is working as a Data Analyst at Ahold Delhaize. In addition, He has graduated in Business Analytics at the VU Amsterdam, and is currently pursuing a MSc in Business Analytics. In his articles, Robert has mostly covered underfollowed European stocks and technology / e-commerce stocks in general.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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