Guidance from our companies indicates
aggregate earnings growth of just 3.5%
in 2008, the weakest for five years
􀀗 However, we think this could be cautious
and with depressed sector valuations we
are looking for buying opportunities
􀀗 Our key Overweight ratings are:
Deutsche Post, DSV and Panalpina
Outlook: 2008 weak earnings growth, recovery in 2009
Investors will not be surprised that the major supply-chain
companies are forecasting slower earnings growth this year.
Guidance suggests aggregate growth in operating profits of
3.5% against a 2002-2007 CAGR of 8.6% and the recent low
point of 3.6%, in 2003. The weaker outlook is due to anticipated
slower volume growth and cost headwinds. Cuts in our
forecasts, to match new guidance or for prudence, have been
deepest for DSV, FedEx and UPS. Deutsche Post has
maintained its guidance. For 2009, we forecast sector earnings
will recover strongly with 9% growth.
But depressed valuations signal a buying opportunity
Recent share-price falls have depressed sector valuations. Of
course, many stocks look cheap, but we think some logistics
companies are well-placed to gain in developing markets,
particularly Asia, the Middle East and Eastern Europe.
Balance sheets and free cash look strong (the direct impact
of the credit crunch appears slight) and acquisitions should
help growth. Indeed, we think that guidance has been set
surprisingly low in some cases and may prove too cautious.
Key Overweights: Deutsche Post, DSV and Panalpina
Revisions to targets: FedEx (Neutral) target cut to USD100
from USD102; TNT (Overweight) target cut to EUR28 from
EUR31 – good potential upside but a catalyst is lacking;
UPS (Overweight) target cut to USD84 from USD86;
Kuehne (Neutral) target cut to CHF105 from CHF107.
Our key Overweight ratings are: DSV (target cut to DKK125
from DKK130, but still indicating c22% return); Panalpina
(target cut to CHF170 from CHF205 – c42% potential
return, but a more risky investment with a volatility flag).
Deutsche remains our preferred name (target lifted to
EUR28 from EUR27, or 45% potential return). If
management offers a convincing plan for restructuring US
express this year and start to implement it, we think it will
see a healthy re-rating.