TNT EXPRESS: 2Q11E – no good news show expected

TNT Express reports 2Q11 results on Monday 1 August before market opening. This is the first time the company reports results since its split from PostNL.

Our View:
We expect results to be rather uninspiring, after an already soft 1st quarter. Furthermore, the 2nd quarter counts the least working days (62 vs 65 1-3-4th quarter) and we believe markets attention will rather be on the progress made in Brazil, the success of yield measures, the activity on the Asia-to-Europe route and EMEA volume evolution.
We see 2Q revenues at € 1,888m (€ 1,784m 2Q10), EBIT at € 54m (€ 60m 2Q10) and underlying EBIT at € 83m (€ 86m 2Q10). Our underlying EBIT estimate is split amongst EMEA (€ 106m), ASPAC (€ 0m), Americas (€ -15m), Other Networks (€ 5m) and Non-Allocated (€ -13m). We have taken into account € 10m in one-offs in Brazil relating to further restructuring.
We hope the company could provide further detail on the guidance for 2011 which now calls for modest revenues growth in EMEA (5% KBCS), Partially recovery in ASPAC and a negative revenues evolution in Americas. Underlying EBIT is guided to come in at 9% or slightly above in EMEA, a partially recovery in ASPAC and negative results with corrective measures in Americas. Our estimates are in line with the guidance provided.

Conclusion:
We re-iterate our Hold rating since we see no short-term triggers. Underlying EBIT margins in EMEA have fallen from 12.8% over 2007 to 9.0% over 2010 with no real recovery in sight. Although management is guiding for a 10-11% mid term margin, with the European express market being highly fragmented and volume growth below that of peers, we believe management faces a challenge. The company has suffered several adverse revenue yield effects that will prove difficult to tackle in the near term.
Our € 8.2/sh TP is set as the average of our DCF-model, with 7x EV/EBIT for EMEA & Other networks (a 20% discount to peers) and 0.5x EV/Sales for emerging activities. We reiterate our Hold rating.