PNL.Netherlands - PostNL

[oddballstocks]

I did a writeup of this on my blog today but thought I'd share it here for some feedback/criticism.

 

TNT a private mail operator in the Netherlands spun out their Express operations (think FedEx/UPS/DHL) back in May and retained a 30% stake in the Express company.  Mail volumes are in decline but parcel and international volumes are growing.

 

PostNL (the parent renamed) trades for 1.2b and TNT Express (the spin) trades for 2.8b.  If we back out the 30% stake from the PostNL market cap the market is valuing the mail/parcel of PostNL at about €440m.  This is for a company that will pay out €150m in dividends in 2011, on about €170m in cash flow.

 

Management has said they will readily sell their stake in TNT Express if Express receives a take over bid, or if the price is right and they can maximize shareholder value.  I consider the 30% stake realizable because management has stated explicitly they intend to sell given the opportunity.

 

I have the full writeup here: http://oddballstocks.blogspot.com/2011/10/postnl-spinoff-opportunity-in-parent.html

 

Any opinions or critiques are welcome, I don't own any shares in PostNL yet, but I'm digging further.  This is intriguing to me, I don't have a firm value of what PostNL is worth given the declining volumes, but I know it's worth a heck of a lot more than what it's trading at.  I'm looking for any land mines I might have missed.

[tombgrt]

Today for a brief moment the market was implying PostNL is worth less than zero.

 

PostNL market cap = 800 million

stake in TNT express = 780 million

 

I have no idea about the business tho. It looks crappy.

[twacowfca]

The business is worse than crappy.  They announced Nov. 7 that all future dividends for a few years would be in stock as the cash is needed to make up a massive pension shortfall.  This would be a tough row to hoe in a decent business, but for a declining business . . . well, phone directories anyone?

[oddballstocks]

Yeah, the dividend paid in stock sucks, but as for the business declining that's a bit of a myth.  Volume has actually increased on parcel volume.  I think PostNL's problems are more of a capital structure/legacy cost variety than the actual business.  If they can get costs in line, and fix up the pension things could be ok with them.

 

With all that said I don't have a position in PostNL, I hold a small stake in TNT Express.  TNT Express is an interesting turnaround in and of itself.  If they can stop the bleeding from South America things will be looking good.  Right now there's a lot of uncertainty with the Brazil division, and concern over Asian volume.  I know the company subleased most of it's planes in Asia eliminating that cost, it's just the slow drop of South America. 

[writser]

Have you reconsidered this stock since your last post? After the bid from UPS TNT express is now trading at a market cap of ~5 billion. This implies that the PNL stake is worth 1.5 billion, or roughly 15% more than the current market cap of PNL itself. As far as I know PNL has been profitable and generating FCF for the past 10 years. The business is probably declining but I imagine people will still send parcels and Christmas cards in ten years. They also have a moat; in every small village there is a local postman, a mailbox and a postal office. Quite an infrastructure that will be hard to copy for any competitors.

 

Cons:

 

- Declining business, low margins.

- I don't know how much their pricing power is constrained by the European / Dutch authorities.

- Business is very labor-intensive, huge pension liabilities.

 

Very lazy bump, haven't done a thorough visit of the company yet.

[writser]

Nate, did you still have your TNTE stake? Today the news got out that the takeover of TNT Express by UPS was abandoned. Both PNL and TNTE dropped ~40%, even more intraday. Might warrant a look again.