Investeringskommentar, Michael Field, Eq. Analyst, 12/05/2016
DSV reported a mixed first quarter, in line with our general expectations. Continued overcapacity issues in air and sea freight led to organic revenue declines year over year; however, in the face of volume declines across the industry, DSV managed to gain market share overall. Cyclical exposure and a heavy reliance on road freight reinforce our no-moat rating.
This was the first earnings release for the combined entity since DSV acquired UTi Worldwide in late 2015. The integration appears to progressing well, with gross profit for the group rising 34% year over year, primarily due to the inclusion of UTi. Importantly, DSV said there has been no material loss of UTi customers since the deal closed, which had been a key concern of ours, given the pace at which sales had been declining at UTi before the acquisition. The company is on track to deliver synergy benefits for the year of DKK 450 million, in line with guidance at the time of the acquisition.
Full-year guidance for the group has been maintained, and given the encouraging progress in the integration of UTi, we are unlikely to make any material changes to our forecasts and our DKK 290 fair value estimate.
Bulls Say
- DSV is now the fourth-largest third-party logistics provider in the world, handling 3% of global trade in a fragmented industry.
- The acquisition of UTi Worldwide gives DSV a significant footprint in geographies where its position had previously been subscale.
- The purchase of UTi was completed at a very attractive level. If DSV can turn this business around, then significant shareholder value can be created.
Bears Say
- The persistent supply glut among air and ocean cargo carriers adds significant volatility to DSV's buy and sell rates.
- Increased transparency in pricing in the industry has led to structurally declining margins across the board.
- The integration and restructuring of UTi Worldwide poses serious execution risk, given the company’s size relative to DSV.
