Morningstar | DSV Updated Star Rating from 01 Aug 2018
Narrow-moat DSV delivered a strong set of first-half results. Volume growth remained robust over the period, in line with our forecasts; however, operating margins continued to tick up, with the group EBIT margin touching 6.9% over the period, running ahead of our full-year expectations as the company focuses on profitable growth rather than chasing volumes. Management also upgraded its full-year guidance for operating profit. As such, we may make modest revisions to our short-term forecasts, but we do not expect these changes to materially affect our DKK 403 fair value estimate. We believe the shares are currently overvalued.Air and sea, which together generate almost 50% of group revenue, were the main drivers of the outperformance over the period. Air freight volumes in particular continued to run ahead of the market, rising 11% in the first half, against market growth of around 5%. In the second quarter, the EBIT margin for air and sea hit 10.9%, a virtually unheard-of number in this sector. While we do not wish to extrapolate out a stellar number from just one quarter, management’s explanation that some of this margin improvement is down to productivity initiatives and the realisation of the remaining synergies from the UTi acquisition gives us hope that at least some portion of this margin accretion is sustainable. Performance in other areas of the business, such as DSV road, which generates around 40% of group revenue, was solid. While volumes ran slightly ahead of the market, operating margins in the division continue to tick up, reaching 4.1% in the second quarter, a solid achievement in what is currently a competitive environment.
DSV is engaged in the provision of transport and logistics solutions. As of Dec 31 2014, Co.'s operations comprised of three business areas. The DSV Air and Sea business provides air and sea freight services and designs project solutions. The DSV Road business provides road and rail transport services including full loads, part loads and groupage. The DSV Solutions business area specializes in contract logistics, which include logistic and warehousing solutions, as well as freight management, custom clearance, order management and e-commerce solutions.
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