Francotyp-Postalia — Acting towards transition

Francotyp-Postalia — Acting towards transition

Francotyp-Postalia (FPH) is addressing structural changes in the global postal market by focusing on franking systems for SMEs, market share gains in selected geographies (France and the US in particular) and participation in the digitalisation trend. Revenues in H117 grew by 4.1% y-o-y, assisted by the success of the new PostBase products in Germany and the US. However, EBITDA declined 13% y-o-y to €12.7m due to ACT-related costs, one-off items and a postage discount cut by Deutsche Post. FPH trades at a 2017e P/E of 14.3x, implying a c 40% premium vs peers.

Francotyp-Postalia

Acting towards transition

Industrials

QuickView

15 November 2017

Price

€4.40

Market cap

€72m

Share price graph

Share details

Code

FPH

Listing

Xetra

Shares in issue

16.3m

Business description

Francotyp-Postalia is a provider of physical and electronic mailing communication solutions with key business segments including franking and inserting, mailing services and software solutions. It holds around 42% of the German franking market and over 10% of the global market.

Bull

Opportunity arising from digitalisation of services.

Strong demand for PostBase systems.

High share of recurring income.

Bear

Recent discount cut by Deutsche Post.

Software services are currently a minor part of the business.

Shares trade at a premium to peers.

Analyst

Milosz Papst

+44 (0)20 3077 5700

Francotyp-Postalia (FPH) is addressing structural changes in the global postal market by focusing on franking systems for SMEs, market share gains in selected geographies (France and the US in particular) and participation in the digitalisation trend. Revenues in H117 grew by 4.1% y-o-y, assisted by the success of the new PostBase products in Germany and the US. However, EBITDA declined 13% y-o-y to €12.7m due to ACT-related costs, one-off items and a postage discount cut by Deutsche Post. FPH trades at a 2017e P/E of 14.3x, implying a c 40% premium vs peers.

Earnings affected by discount cut and one-off costs

FPH reported a net profit of €2.1m in H117, down from €4.0m in H116. This was mostly due to the postage discount cut introduced by Deutsche Post in early-2017, ACT implementation costs and one-off items in the Mail Services division. This impaired operating profitability, with EBITDA margin declining to 12.2% from 14.6% in H116. Revenues in H117 grew 4.1% y-o-y to €104.4m despite the 4.3% lower mail volumes processed in Mail Services vs the prior year, driven by solid demand for the new PostBase systems and higher sales from franking services. Regionally, sales grew by 3.7% y-o-y to €56.6m in Germany and by 7.8% to €23.5m in the US. For H217, FPH guides to a slight increase in revenues and profitability.

Focus on traditional SME offering and digitalisation

One of FPH’s strategic pillars is its focus on the small mail volume division, which it reports grew by c 3.4% pa historically. FPH’s plans to expand its SME customer base and subsequently shift the product mix towards digital services related to in- and outbound business communications, as well as digital signing solutions. These services represented 6.5% of group sales in H117. E-signature technologies (like FP-Sign) will grow by 43% pa over the next five years, according to Aragon Research. FPH also continues its efficiency improvement programme covering HR, finance, sales, IT and R&D functions. The company targets sales of €250m and an EBITDA margin of at least 17% by FY20 (FY16: €203m and 13.4% respectively).

Valuation: Premium despite recent sell-off

Despite the share price decline following the H117 results announcement, FPH trades at a 2017e consensus P/E of 14.3x, implying a c 40% premium to its peers. The shares trade at a c 50% discount to peers on 2017e EV/EBITDA ratio, but this reflects the fact that FPH’s products are leased to clients and so are capitalised.

Consensus estimates

Year
end

Revenue
(£m)

PBT
(£m)

EPS
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/15

191.1

7.6

0.22

0.12

20.0

2.7

12/16

203.0

9.6

0.36

0.16

12.2

3.6

12/17e

207.7

7.7

0.31

0.16

14.3

3.6

12/18e

215.7

10.8

0.44

0.17

10.0

3.8

Source: Francotyp-Postalia accounts, Bloomberg consensus estimates

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US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2014]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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