Logistics investment analyst Jefferies anticipates ‘a higher and recommended offer’, with Panalpina’s board reported to be in negotiations with DSV.
A raised offer from DSV for Panalpina remains “the most likely outcome” following the decision by Panalpina’s largest shareholder to reject DSV’s initial bid, according to logistics investment analyst Jefferies.
Jefferies noted that the Panalpina board of directors had started negotiations with DSV, according to reports in the Swiss press last week, after the Ernest Goehner foundation, with a 46% stake, rejected DSV’s initial offer on 4 Monday February.
“We think this will likely lead to a potentially higher and recommended offer, as it is unlikely there will be any competing offers, after Kuehne + Nagel has already said not to be interested at the current price,” Jefferies analyst David Kerstens said. “Furthermore, Panalpina’s profitability has been stable at 2.0% since 2010 under Panalpina’s independent strategy, while the estimated EBIT recovery of 20% for 4Q18E might prove too optimistic (due Feb 28th), after a 5% decrease in 3Q18.
“We think the rejection by the Ernest Goehner Foundation is an attempt to achieve a higher offer, as the Foundation’s chairman talked about concerns over job losses and IT investments of CHF250m–CHF300m in SAP Transport Management, while remaining interested in a higher price. The current CHF180 offer values Panalpina at CHF4.0bn, implying a takeover multiple of 26.0x EBIT at a 60% premium to the sector.
“Panalpina would add 50% to DSV’s revenue and 18%-35% to EPS, after a 20% capital increase, assuming Panalpina’s profitability recovers from 2% to 7%-10%, resulting in an ROIC of 9%-13%. A higher offer of up to CHF 200, in line with our Panalpina Long View Upside Scenario, would reduce EPS accretion to 17%-34% and result in an ROIC of 8%-12%.
Jefferies described DSV’s recent four-quarter 2018 results as “mixed, with a slowdown in Road, which is reflected in cautious FY19E EBIT growth guidance of 2%-9%, reflecting market volume growth of 3% and increased macro-economic risk”.
It added: “DSV’s 4Q18 results reflected continuing strong momentum in Air & Sea, driven by market share gains and higher yields, and in Solutions, on the back of strong top-line growth, driven by retail and automotive, but a weaker than expected stable result in Road, held back by Brexit preparations as the UK accounts for 6% of Road and 5% of group revenues.
“Cautious FY19E EBIT guidance of DKK5,900-6,300m includes a positive IFRS 16 impact of DKK300-350m, implying underlying EBIT growth is in the range from 2%-9%, reflecting market growth of c3% and increasing macro-economic risk.
“We have updated our estimates for IFRS 16 and lowered EPS estimates by up to 12% for FY21E, as we now no longer assume a continuation of the share buyback program (vs. 5% per annum previously) in the light of the pending Panalpina takeover offer.”