PostNL 2020 Targets Tamed by Long Arm of Regulator: Street Wrap

PostNL NV had its 2020 growth plan reined in by regulation that compels it to share its network with competitors, spurring a selloff that sent shares tumbling as much as 19 percent, their biggest intraday decline since November 2015. The Dutch mail and parcel company lowered its guidance for underlying cash operating income by more than one-fifth on Monday, overshadowing full-year results that met analysts’ estimates.

PostNL now estimates the cost of allowing others to access its network as high as 70 million euros ($86 million), compared with its earlier forecast of 30 million euros to 50 million euros. The quarterly update offered bad news for 2017, 2018 and 2020, Kepler Cheuvreux analyst Andre Mulder said in a note, while KBC’s Ruben Devos pointed to “challenging” mail market conditions posing a “significant drag on the earnings evolution.”

PostNL has slumped more than 30 percent since the company in December 2016 rejected a final takeover bid from Belgian peer Bpost SA, which has climbed 29 percent in the same period. PostNL’s Chief Executive Officer Herna Verhagen told reporters on Monday that consolidation in the sector is “inevitable,” citing the regulatory environment in the Netherlands.

Kepler Cheuvreux, Andre Mulder

(Reduce, PT EU2.80)

As a result of the larger regulatory impact from the Dutch Authority for Consumers and Markets, management guidance for 2018 is “far below consensus” after posting 2017 results that were “a touch below expectations.”

The dividend of 0.23 euro per share is “a positive,” but with cash income as a base, dividend growth towards 2020 will be similarly limited.

KBC Securities, Ruben Devos

(Buy, PT EU5.20)

As a result of a stronger-than-expected impact of regulation in the mail market, a delay in recovery by the international business and parcel investments “to accommodate growth,” the 2018 guidance at the mid-point falls 27 percent short of consensus expectations.

“Conditions in the mail market remain challenging, to say the least, and are a significant drag on the earnings evolution,” with the company pointing to a “short term mismatch of cost savings and the impact of mail volume decline” in 2018.

Goldman Sachs, Matija Gergolet

(Buy, PT EU4.70 under review)

“We view this set of results as a significant negative and put our estimates, price target and rating under review pending the call with management (10 a.m. GMT).”

The company has “raised its estimate for the expected negative impact from the ACM decision on significant market power and expects a faster decline in the addressed mail volumes due to competition, as well as weaker performance internationally.”

Morgan Stanley, Penelope Butcher

(Equal-weight, PT EU4.25)

The profit outlook for 2018 is impacted by “faster-than-anticipated development of previously announced ACM measures” regulating access of other postal operators to PostNL’s network.

“This is particularly caused by a larger than expected volume loss to other postal operators.”

ING, Marc Zwartsenburg

(Buy, PT EU5.75)

PostNL slashing 2020 targets is mainly due to deeper mail volume declines as the impact from the AMC ruling is “more significant” than before. This is due to losses of market share and guidance for its international segment below expectations.

A positive is PostNL’s commitment to keep the dividend payout progressive. “Overall, the warning on 2018 and 2020 is more severe than expected and dividend will provide a floor but not enough to provide sufficient support we believe.”

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