Euronext Brussels: the art behind the veiled profit warning

Growth concerns put European equities in the red. Bpost delivered far fewer packages in the first quarter, warning that it may not live up to its profit forecast. WDP will realize the enlargement in Germany on its own.

While Wall Street reacted almost euphorically to the 50 basis point rate hike and the less aggressive tone imposed by the Federal Reserve on Wednesday, the trend completely reversed on Thursday. The Bank of England took the lead by predicting a recession in the UK next year. Rising US mortgage rates and fears that the Fed will not fight inflation strongly enough caused investors to push the sell button a lot. This results in significant index losses.

At first it seemed that the European stock markets would keep a cool head, but the losses increased rapidly. Growth concerns are the foundation. Markets are wondering if the Fed will be able to avoid a recession in the US. The sharp slowdown in the Chinese economy due to the zero-covid policy that Beijing is sticking to is also a cause for concern. Around 12.40, the Euro Stoxx 50 has fallen 1.1 percent.

Rising interest rates are putting pressure on the logistics real estate specialists VGP

(-2.1%) and WDP

(-3.4%). Something else is happening with the latter. WDP announced that it would buy local partner VIB Vermögen into the German joint venture WVI. The transaction should be completed by the middle of this year and means that WDP will from now on be fully responsible for further expansion in Germany.

Analyst Wim Lewi from KBC Securities estimates that WDP will have to pay between 25 and 30 million euros for VIB’s interests. He maintains his team advice and price target of 40 euros.

Kepler Cheuvreux is not surprised that WDP is buying out its German partner, as the company has ‘ambitions in Germany’ in its new growth plan 2022-2025. Again, no changes in advice (team) or price target (41 euros).

‘More clouds on the horizon’

With Bpost

we have entered the broad market. The letter and parcel distributor gets a brutal blow of 9.7 percent to 5.47 euros. The Bpost share is again approaching its lowest level in the summer of 2020.

Although the volume of packages delivered by the company fell by 15 percent in the first quarter, the quarterly results themselves were better than expected. The prospects were much smaller. Due to high inflation, both in Belgium and elsewhere in the world, and uncertain consumer behavior, the operating profit may be up to 40 million euros lower than the current forecast, which is between 280 and 310 million. So de facto a profit warning, even if it was served somewhat veiled.

This does not go down well with investors, and analysts are also sharpening their pencils. ‘A healthy neighborhood, but more clouds on the horizon’, was the title of Frank Claassen from Degroof Petercam’s report. But despite the increased uncertainty, he still believes the valuation is still very low, so his buy recommendation remains intact. He lowers his price target from 9 to 8 euros.

KBC Securities is also implementing a price target reduction. Analyst Michiel Declercq believes that an operating profit that would be 40 million euros lower than expected at present is a ‘worst-case scenario’. He keeps his buy recommendation. However, he lowered his price target from 11 to 8.60 euros to reflect the current uncertainty and lower valuations in the sector.

Bpost performs better than consensus, says ING analyst Marc Zwartsenburg, but the quality of the results is low. He notes that they have been partially whipped up by corona-related mail and also due to a strong performance from the US subsidiary Radial. On the other hand, domestic mail traffic fell by 5.4 per cent and parcel transport in the Benelux fell by 14.8 per cent in volume, much more than the 8 per cent decline he had expected. The sharp fall is due, among other things, to Amazon, which is increasingly delivering packages. Amazon is already fully committed to this in French-speaking Belgium, but Flanders is following suit with the opening of a depot in Antwerp at the end of this year.

Zwartsenburg does not change its price target (7 euros) and its buy recommendation.

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