Morningstar | Narrow-Moat DSV Provides the Goods in 3Q
Narrow-moat DSV delivered yet another strong update, with underlying revenue growth of more than 7% and adjusted EBIT margins hitting new highs of 7.4%. However, given that these were baked into our forecasts for the full year, we do not expect to make any material changes to our near-term forecasts on the back of this update. We reiterate our DKK 440 fair value estimate and believe the shares remain moderately overvalued, even after the material share price fall since September.Volume growth across the business continued to outpace the market, with 4% growth in sea and road freight, while air grew at a whopping 7%. Management has reported a normalisation of growth rates in the airfreight market, which has been growing at high single digits for the past two years. The company expects market growth of 3%-4% for full-year 2018. This is not to say, however, that DSV cannot grow ahead of this rate, as the company continues to take market share through specialisation, targeting specific sectors such as pharma transport with dedicated services. Another area in which we were impressed was in solutions, where DSV provides logistics and warehousing solutions for clients. Although this business generates just 15% of group revenue, EBIT margins have seen continual improvement, reaching 5.4% in the quarter through efficiency initiatives. These include increased warehouse automation and the rollout of global IT platforms.
We believe that customers' increasingly sophisticated requirements and the increasing demand for intermodal transport will be a boon to large third-party logistics providers such as DSV in the medium to long term; however, we think investors’ expectations for the company are currently quite high, hence our lack of enthusiasm for the shares at current price levels.
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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