Although 2Q11 results were not dramatically impressive, the fact that there was no profit warning and some signs of stabilization clearly appeased investors. Management provided good indications that it is getting things back under control in Brazil – although there is short-term volatility -while measures taken across EMEA (both on commercial and cost level front) seem to bear fruit.
We have adjusted our short and mid-term forecasts taking into account a larger loss in Brazil over the short term with our 2012 and 2013 forecasts for Americas remaining almost unchanged. It seems management is on top of matters in Brazil and service quality stabilized, key personnel was re-hired, top clients secured, and some clients seem to indicate that they could come back in the awake of the busy September period. We also understood that there are no longer big customers claims outstanding and management re-iterated that it is on track to reach a break-even level by the second half of 2012.
Across EMEA TNT Express witnessed a more supportive mix effect with less focus on Domestic Road, and stronger growth in International Economy. Furthermore, efforts towards SME clients are bearing fruit and the company was successful in passing on (fuel) surcharges.
Aspac remains very volatile and management has limited visibility on volumes (e.g. high tech demand from European customers is a big driver). The company’s strategy in Domestic China to bring L-t-L (less than truck load) towards Day definite is moving according to plan with the break-even target by 2013 confirmed.
The main delta from our forecasts stemmed from Non-Allocatedcosts which came in significantly lower than anticipated. During the analyst call, management noted not to copy the 1H to forecast 2H numbers, and noted that Non-Allocated would come in between € 26-55m (€ 35m KBCS).
Conclusion:
The macro-environment is very fragile and with markets remaining volatile we believe this is not the right time to own a cyclical company like TNT Express. Trading at a P/E 2012 of 15.8x vs. peers (UPS / Fedex) at 12.5x and EV/EBIT of 14.0x 2011 and 8.8x 2012 vs. peers at 11.3x and 8.8x there is limited room for upside.
We stick to our Hold rating and € 8.2 TP.