CONSUMER CYCLICALS: PostNL: 4Q trading update

(PNLNA: NR/BBB Neg) 

Couple of European luxury stocks were breaking all-time highs last week - PostNL doing the opposite this morning. We expect a S&P downgrade, outlook there may depend on guidance it issues next month. On RV. the new 31s was a value view in primary and performed (-20-25, now -28), but we turned cautious since July last year (1-month after pricing) with a preference to revisit after Q2 results. Q2 results were lacklustre, Q3 results the same and now this morning the seasonally heavy Q4 results still lacklustre. It is similarly becoming harder to endorse the IDS 28s as alternative to given its near term catalyst - the advantage with that line are the 1.25% coupon step-up protection for HY ratings. IDS 26s (no step-up but +3pts to par CoC on HY ratings) more clearly screens better value (+20bp pickup over PostNL 26s).

Reminder IDS has global parcel delivery arm, GLS, that has carried its bottom line while Royal Mail was/is hampered - PostNL does not have such exposure outside home/Benelux region. The headlines "unsustainable business model" is a ~typical complaint shared by both who are USO's to mail delivery requirements in their countries - Mail volumes have fallen but delivery agreements have not kept pace leaving inefficient operations (sending drivers out when they otherwise would not have). Labour driven cost inflation has also been a problem YTD - no updates on that today. Full results come 24th Feb.

• FY 24 (pre-lim);
  • adj. EBIT €53m (-42% yoy) vs. guided €80m
  • FCF €12m (vs. €52m last year) but above guided to €0m
• Q4 mail volumes were "disappointing"
• Parcel volumes were +10.5%, less than it projected but still up from last years +7.2%
• Expects leverage to be around 1.95x providing room for a final dividend (has historically had a 70-90% payout; net income this year of €38m, -27%yoy).
  • Above is in line with <2x net leverage target. It had €700m in cash as at Sept. '24 but assuming €353m went to the Nov '24 paydown (matured), we see gross leverage at 3.2x.