EUR 850.00 For Business Accounts Only

Morningstar | Ominous Outlook but Decent Results From Narrow-Moat Kuehne + Nagel

Third-party logistics giant Kuehne + Nagel delivered a set of full-year numbers that were bang in line with our estimates but a touch behind consensus expectations. Volume growth was strong over the period but came at the cost of a slight EBIT margin decline, down 20 basis points to 4.8%. While the company confirmed its goal to increase volume at twice the market rate in 2019, the ominous statement regarding a slowing in the growth momentum of the general economy could be enough to spook some investors. Given our relatively conservative existing expectations, we do not expect to make any material changes to our forecasts, and we reiterate our CHF 144 fair value estimate. We believe the shares offer moderate upside potential from here.

Divisionally, volume and revenue growth were strong across the board with sea and air freight, which together generate almost two thirds of group revenue, reporting 7.7% and 11% respective volume increases. A focus on specific segments such as pharma and healthcare helped push EBIT margins up significantly in air freight, rising 180 basis points year over year to 6.3%; however, sea freight EBIT margins moved in the opposite direction, falling 20 basis points to 4.5% as the company noted "considerable pressure" on European exports. While only a small part of the group, there were signs of progress in the overland business, which saw volume rise 13% over the period. This business has seen margins rise almost linearly over the past few years following a long loss-making period.

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 sea freight and the number two in air freight globally, Kuehne + Nagel is well positioned to take advantage of positive structural trends such as these.