Home > Blog > Trader talk > Deutsche Post AG – A key holding in a portfolio

The shares of Deutsche Post AG trade on the Xetra stock exchange and have returned over 30% to shareholders year-to-date. This is an excellent performance not only on an absolute return basis but also when comparing it to the German index, which is up 13% over the same period.

The shares are also trading on an attractive indicative gross yield of 3%.

We expect the Group to continue improving its sales and profitability in the years ahead.

Following the good business performance of the first nine months, the Group is maintaining its forecast of an increase in EBIT to around €3.75bln for full-year 2017. Deutsche Post DHL Group is also maintaining its forecast of an average increase in operating profit of more than 8% annually (CAGR) for the period from 2013 to 2020.

We believe these targets are achievable and maintain our €42 price target on the stock.

Rationale why we continue to like the shares of Deutsche Post:

  • The shares are trading on an attractive indicative gross dividend yield of 3%
  • We have a 1 year price target of €42 on the stock which represents a potential 6% upside from the current price
  • The Group saw an improvement in revenues from all its divisions in Q317 and expect to see continued growth in the foreseeable future
  • Continued investment for future growth – For example, investments focused on extending the domestic and international parcel infrastructure, stepping up production of the StreetScooter and expanding and modernizing the hubs and aircraft fleet used by DHL Express
  • Risks to the model
  • We are using a forward P/E of 20x which although is in line with the 10-year average of the group, it is below the current P/E of 18.75x. We believe the stock merits to trade on a higher P/E as we expect it to continue to benefit from increased sales and reduced costs which should improve margins going forward.

Share buyback and/or dividend hikes

The company has a very strong cash base. Some of this cash is expected to be handed over back to shareholders in the form of share buybacks or dividend hikes.

Conclusion

Deutsche Post should be considered as a core holding in a portfolio. For the long term investor, the stock offers attractive capital gains and a decent dividend yield. Additional positives in favour of this investment is a management team which is working to improve the efficiency of the company and a business model which is cyclical and will benefit from an improvement in global growth.

About the Company

Deutsche Post AG, headquartered in Germany and operating under the trade name Deutsche Post DHL, is the world’s largest courier company. The Group is made up of four divisions being; The Post – eCommerce – Parcel (PeP), Express, Global Forwarding and the Supply Chain divisions.