Francotyp-Postalia (FPH) is addressing structural changes in the global postal market by focusing on franking systems for SMEs, market share gains in selected geographies (France and the US in particular) and participation in the digitalisation trend. Revenues in H117 grew by 4.1% y-o-y, assisted by the success of the new PostBase products in Germany and the US. However, EBITDA declined 13% y-o-y to €12.7m due to ACT-related costs, one-off items and a postage discount cut by Deutsche Post. FPH trades at a 2017e P/E of 14.3x, implying a c 40% premium vs peers.
Francotyp-Postalia |
Acting towards transition
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Industrials |
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15 November 2017 |
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Francotyp-Postalia (FPH) is addressing structural changes in the global postal market by focusing on franking systems for SMEs, market share gains in selected geographies (France and the US in particular) and participation in the digitalisation trend. Revenues in H117 grew by 4.1% y-o-y, assisted by the success of the new PostBase products in Germany and the US. However, EBITDA declined 13% y-o-y to €12.7m due to ACT-related costs, one-off items and a postage discount cut by Deutsche Post. FPH trades at a 2017e P/E of 14.3x, implying a c 40% premium vs peers.
Earnings affected by discount cut and one-off costs
FPH reported a net profit of €2.1m in H117, down from €4.0m in H116. This was mostly due to the postage discount cut introduced by Deutsche Post in early-2017, ACT implementation costs and one-off items in the Mail Services division. This impaired operating profitability, with EBITDA margin declining to 12.2% from 14.6% in H116. Revenues in H117 grew 4.1% y-o-y to €104.4m despite the 4.3% lower mail volumes processed in Mail Services vs the prior year, driven by solid demand for the new PostBase systems and higher sales from franking services. Regionally, sales grew by 3.7% y-o-y to €56.6m in Germany and by 7.8% to €23.5m in the US. For H217, FPH guides to a slight increase in revenues and profitability.
Focus on traditional SME offering and digitalisation
One of FPH’s strategic pillars is its focus on the small mail volume division, which it reports grew by c 3.4% pa historically. FPH’s plans to expand its SME customer base and subsequently shift the product mix towards digital services related to in- and outbound business communications, as well as digital signing solutions. These services represented 6.5% of group sales in H117. E-signature technologies (like FP-Sign) will grow by 43% pa over the next five years, according to Aragon Research. FPH also continues its efficiency improvement programme covering HR, finance, sales, IT and R&D functions. The company targets sales of €250m and an EBITDA margin of at least 17% by FY20 (FY16: €203m and 13.4% respectively).
Valuation: Premium despite recent sell-off
Despite the share price decline following the H117 results announcement, FPH trades at a 2017e consensus P/E of 14.3x, implying a c 40% premium to its peers. The shares trade at a c 50% discount to peers on 2017e EV/EBITDA ratio, but this reflects the fact that FPH’s products are leased to clients and so are capitalised.
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Consensus estimates
Source: Francotyp-Postalia accounts, Bloomberg consensus estimates |
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Research: TMT
The Marketing Group’s Q3 results show that it is now properly focused on growing the business, with group agencies worldwide taking on larger pieces of work in collaboration. EBITDA margin to net revenue has grown in each of the last three quarters and we have moved our full year, FY18 and FY19 earnings’ forecasts ahead by c 10%. Net cash at the end of the quarter had increased to €1.7m from €0.9m at end June. This is facilitating investment in new initiatives, including the group’s new blockchain-enabled global media agency, Truth. The rating should start to improve as confidence builds that management can deliver on its strategy.