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The initial fall and subsequent rise of CEVA Logistics stock has been spectacular to watch since it started to trade on May 4. But it was nothing compared with this week’s 7% plunge of Deutsche Post-DHL, which wiped out over €3bn of market cap in just one trading session following a rather poor trading update.
At least CEVA had the excuse that its IPO was priced and wrapped up in one of the most volatile weeks of the year, given wild swings up to the day that preceded its market debut.
But now, more importantly, the bears talk of a DP-DHL trading update that might send mixed signals to CEVA investors, despite the fact that these holdings are among the most undervalued stocks in the T&L industry, based on their current price – which, at CHF27.32, is just CHF0.18 away from IPO.
For its part, the German behemoth confirmed on Tuesday that volatility was not one of the main culprits of value destruction, because, quite simply, expectations were set too high earlier this year, when it was already apparent that direct and indirect costs would be harder to manage, with more profitable growth harder to come by. Management confirmed earnings guidance, but in a way, this reminds me of a much smaller asset-light operator, CH Robinson, which was similarly under pressure earlier this month when it released its quarterly figures.
Elsewhere in the bull camp, perhaps unsurprisingly, once again I have heard great things about Expeditors, which reported its interim results on Wednesday. Its stock soared 8% on the back of solid growth rates and a massive better-than-expected diluted earnings per share, up 49% on a comparable basis, which confirms that alongside DSV, Expeditors remains the most efficient asset-light company in the T&L world, with the substantial difference that its growth is mainly organic, while its Danish rival abides by an M&A-driven strategy.
Ok, so now look at the chart below in the week during which DSV set a new record high on the stock market.
And then, for comparable purposes, bring in another asset-light business, XPO Logistics, that has little exposure to freight forwarding, but is one of the largest providers of last-mile logistics for heavy goods in North America.
XPO, whose latest numbers earlier this month confirmed its ambitions are well placed, has become more problematic to value, however. In other words, it is easy to speculate that risk is skewed to the downside if a takeover offer doesn’t emerge by the end of the year, as it continues to trade close to a record high of $109.05, boosted by M&A talk since December.
M&A Land: The new kid on the block
In the M&A context, CEVA, with its brand new balance sheet, is now the new kid on the block — it has to prove that M&A can be used to grow, with the blessing of CMA CGM — and will need time to be included in the charts above for comparable purposes.
Clearly, the possible bad news coming from DP-DHL’s latest release is that the supply chain business of the courier, as The Loadstar reported, recorded “dramatic double-digit drops in earnings and profitability, with the latter plummeting 44.4% compared with 2017.”
This is contract logistics stuff, so the “read-across” is certainly bad for CEVA, but the different size, end markets, business diversity and solutions mix of its much larger competitor hardly move the valuation needle.
Notably, the good news is that the asset-light unit of DP-DHL – “Global Forwarding, Freight” – delivered better operating profits, which passed almost unnoticed at group level (PeP and Express is where most value resides, you could argue) but might bode well for the freight forwarding business of CEVA, although I must acknowledge that, underneath the surface, it appears clear that the unit remains in restructuring mode, as testified by its negative cash flows.
And that is a key metric by which CEVA management will be judged in the months to come.