bpost: added staff costs will reduce dividend

As part of plans to add 1,000 full time employees to its workforce adding cost pressures of some €80 million to its projected outgoings, bpost is to drop its dividend offering by 60%. The added staffing amounts to increasing its workforce by 3%.

“We have cut EPS estimates by 24-36% and now estimate FY19E EBIT will fall 28% to €308m, vs. previous guidance for a relatively more stable result of around €390m at last summer’s CMD. As a result, we estimate bpost’s EBIT margin will fall to 8.0% this year, in line with the average of the European postal sector, versus >20% only two years ago.

“Beyond FY19E, we are projecting a gradual further decline in EBIT, with increasing mail volume pressure of up to 9%, driven by accelerating e-substitution and the new operating model for mail, partly offset by a recovery of Radial’s profitability beyond FY19E from 28% customer churn post acquisition.”

“The stable FY18E dividend of €1.31 with a yield of 16.5% does not look sustainable in view of an estimated free cash flow cover in the range of 55%-75%. As a result, we assume the dividend will be cut by 60% this year, based on a pay-out ratio of 75% of free cash flow, resulting in a sector-average yield.

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