EUR 850.00 For Business Accounts Only

Morningstar | Kuehne + Nagel Delivers Solid 1Q

Narrow-moat Kuehne + Nagel posted a solid set of first-quarter results despite market pressures in some areas. As these numbers were broadly in line with our expectations for the full year, we do not expect to make any material changes to our forecasts on the back of these results. We reiterate our CHF 144 fair value estimate and believe the shares are currently fairly valued.

The real surprise in the quarter was airfreight, where volume fell 3.1%. This level of decline was in line with the general market, however, and comes after a period of extraordinary growth over the last few years in the space. Moreover, a strong performance in reducing costs here allowed the company to hold margins essentially flat over the period. Elsewhere, top-line growth remained strong, with volume growth of more than 6% in seafreight combined with modest margin improvement. Likewise, both overland and contract logistics, which together generate 40% of group revenue, saw revenue growth of more than 6%, while the former also saw EBIT margins improve to 2.3% over the period. Efforts to restructure the overland business have led to material improvements in profitability, with margins here improving linearly for the last five years from what was a loss-making business as recently as 2013.

In the longer term, as the logistic needs of customers become steadily more complex, requiring services such as multimodal transport, tracking capabilities, and temperature monitoring, business should naturally migrate to large providers with strong capabilities. As the largest provider in seafreight and the number two in airfreight globally, Kuehne + Nagel is well positioned to take advantage of positive structural trends such as these.