EUR 850.00 For Business Accounts Only

Morningstar | Narrow-Moat Kuehne + Nagel Lands a Solid First Half

Narrow-moat Kuehne + Nagel delivered a solid first-half update, with net revenue up more than 14% year over year and EBIT up more than 10%, with the EBIT margin flat at 5% on full-year 2017. As these numbers were broadly in line with our full-year expectations, we do not expect to make any material changes to our forecasts or to our CHF 144 fair value estimate. We believe the shares are currently fairly valued.

Divisionally, strong volume growth was witnessed across the board, with airfreight and overland being the standouts, both increasing volumes by around 18% over the period. The company have attributed this to their focus on solutions for specific industries, such as pharmaceuticals. While we have had some concerns that this level of volume growth has come at the expense of margins, KN improved its EBIT and EBIT/gross profit margins in almost all divisions over the period, with a couple of exceptions. In contract logistics, recent investment in infrastructure has reduced margins over the period, while in seafreight, we believe the recent consolidation and formation of shipping alliances by the largest players is reducing KN’s buying power, causing a slight dip in margins in this area. Ultimately, we do not view this as life-threatening for KN, but we believe that margin improvement beyond recent peaks will be very difficult to achieve going forward.

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, KN is well positioned to take advantage of positive structural trends such as these.