Oesterreichische Post raised to BUY, TP EUR 38.0 - Strong top line dynamics finally trickle down to EBIT line

Preliminary FY 20 EBIT of EUR 160 mn shows that the postal operator has likely overcome the inefficiencies in its Parcel & Logistics network
Two new sorting centers added about 20% of capacity.
Incorporating the better than expected top-line trends and the higher operating leverage into our financial forecast we hike our FY 21e and FY 22e operating profit estimates by around 10%.
Consequently, we increase our target price to EUR 38.0 from EUR 33.0 also supported by lower risk-free rates and lift our recommendation to BUY from HOLD.

On Friday, Oesterreichische Post (the Austrian Post) in an ad-hoc release reported preliminary FY20 EBIT of around EUR 160 mn, thus topping RBI est. of EUR 133 mn and consensus of EUR135mn by almost 20%. Incorporating the better than expected top-line trends and the higher operating leverage into our financial forecast we hike our FY 21e and FY 22e operating profit estimates by around 10%. Consequently, we increase our target price to EUR 38.0 from EUR 33.0 also supported by lower risk-free rates and lift our recommendation to BUY from HOLD.

We see the release of FY 20 revenue and EBIT numbers as a clear positive for the share price as:
 The release shows that the postal operator has likely overcome the inefficiencies in its Parcel & Logistics network which burdened profitability in Q1-3 20. Although not disclosed, we assume that the Austrian Post likely reached a double-digit operating profit margin in its Parcel & Logistics segment vs. a margin of 5.7% in Q1-3 20. The opening of 2 new parcel sorting centers increased the capacities by 20%.
 After the full consolidation of Turkish Aras Kargo Parcel & Logistics revenues will likely account for almost 50% of group revenues in FY 21e. Thus, investors might change perception and give a higher weighting to booming e-commerce trends after the strong Q4 results, which reflect that the strong top-line dynamics result in a boost to operating profitability.
 The higher base of FY 20 triggered an upgrade of our financial estimates for the next few years and likely allows also for consensus to move upwards.

Very limited lockdown effects in Mail, high operating leverage in Parcel & Logistics: Beside the higher operating leverage in Parcel & Logistics the preliminary results also showed that Q4 was not too much impacted by negative lockdown effects. Mail revenues were down only by -2.8% yoy, an even lower rate of decline than in Q3 20 (-5.5%), which was not characterised by pandemic restrictions. Q4 20 Mail revenues of EUR 339 mn topped RBI estimates by about 10%. Parcel revenue growth was extremely strong at 34% (excl. Turkish Aras Kargo), reflecting a very good pricing environment as the strong volume growth fully translated into revenues. As also Turkish Aras Kargo contributed around EUR 10 mn more in revenues than we assumed, total Parcel & Logistics revenues of EUR 337 mn topped our estimates by 18%.