Logistics investment analyst Jefferies highlights the better-than-expected operating earnings performances for the key leading global transport and logistics groups, despite Covid pandemic challenges.
Despite the massive challenges presented by the Covid-19 pandemic, the second quarter of 2020 (2Q20) is expected to turn out to have produced a record quarter in terms of operating earnings for key leading global transport and logistics groups DSV Panalpina and Deutsche Post DHL, thanks to very high air freight prices during the quarter, according to logistics investment analyst Jefferies International.
In an Equity Research briefing on Friday, equity analyst David Kerstens said both had performed “well above initial expectations, supported by a tight air freight market”.
Following preliminary results from each, he said DSV is not expected to report 2Q20 EBIT (earnings before interest and tax) of at least DKK 2.3bn, “more than double the initial consensus”, and implying a growth acceleration from 8% year on year (y/y) in the first quarter of 2020 (1Q20), to more than 40% y/y in the second quarter, “driven by a less severe volume downturn and a DKK 300m-DKK 400m boost from Panalpina’s charter network”, after air freight rates surged in May by between 2x and 4x their normal level.
He said total cost savings of DKK 3.7bn are expected to add more than 60% to the group’s EBIT in 2021, including Panalpina synergies of DKK 2.3bn and Covid-19 cost savings measures of DKK 1.4bn.
Meanwhile, preliminary 2Q20 EBIT figures for Deutsche Post DHL beat analysts’ expectations by around 30%, driven by DHL Forwarding & Freight and DHL Express. Adjusted EBIT growth accelerated to 25%, from a stable result in 1Q20. Kerstens highlighted that DHL Express returned to EBIT growth of 7% in the quarter, on the back of continuing positive time-definite international (TDI) volume momentum in China and improving momentum in Europe from a trough in April.
EBIT for the group’s DHL Forwarding, Freight unit surged 52% on the back of a tightening air freight market, partly offset by a 36% lower result in DHL Supply Chain, he noted, adding: “Reintroduced FY20E EBIT guidance is in line with consensus, but reflects a stronger underlying development, and we increased FY20E adjusted EPS by 5%. FY22E EBIT guidance is lowered by only 4%, under a U-shaped recovery scenario.
Container freight rates
Kerstens noted that container freight rates remain relatively high, although he said idle rates of vessels have peaked and bunker prices have bottomed.
“The SCFI decreased 2% to $1,034/TEU, after the recent 25% rally on the back of three general rate increases on the transpacific to the US, whereas freight rates elsewhere remained relatively stable,” he noted. “The CCFI increased 1% to $865/TEU.
The SCFI and CCFI are now 31% and 6% ahead of this week last year, respectively, and are tracking 13% and 7% higher on average so far this year, respectively.
He also highlighted “the relatively wide gap of almost $170/TEU between the SCFI (spot index) and CCFI (spot + contract index), reflecting lower bunker adjustment factors in contracts”.
He said idle capacity peaked at 11.6% at the end of May “and is now coming down as lockdown restrictions in Europe and the US are gradually being relaxed. It remains to be seen whether this will be sufficient (to maintain the current price levels), with container demand expected to contract by close to 10% this year.”
But he also highlighted that bunker prices have strongly recovered, with low-sulphur fuel oil (LSFO) at $322/ton, 25% above the 2Q20E average.
Source: Lloyd’s
