Analysts see new acquisitions on the horizon at DSV after major upgrade

Although the coronavirus crisis has so far put a damper on DSV's acquisition spree, several analysts still think the Danish logistics company could be underway with new acquisitions. The small players are struggling, says analyst.

Photo: Lars Krabbe/Foto: Lars Krabbe/Ritzau Scanpix

Although the Covid-19 pandemic has put a damper on DSV Panalpina's hunger for acquisitions in 2020 so far, several analysts still expect the Danish transport and logistics company to be working on new deals.

Just one week ago, CEO Jens Bjørn Andersen told Berlingske that the coronavirus crisis has made it too unpredictable to expand business right now, although acquisitions remain a central part of the company's strategy.

But with Friday's large-scale guidance upgrade, several analysts now think DSV Panalpina is in a good position to start buying up.

"There are several of the smaller ones (players, -ed.) that have not been able to secure the same freight capacity as DSV and Kuehne+Nagel have been able to, which will experience problems as a result of this. I can imagine that new opportunities will arise in the market that one would like to explore. If not, that capital will return to the shareholders," says equity analyst at Nykredit Markets, Ricky Steen Rasmussen, to ShippingWatch.

I can imagine that new opportunities will arise in the market that one would like to explore.

Ricky Rasmussen, equity analyst, Nykredit Markets

Investment bank Jefferies also thinks more transactions could be underway because the integration of last year's acquisition, Swiss competitor Panalpina, is almost complete.

"Management had earlier indicated it would prioritise further expansion in Road, but recently also discussed add-on acquisition opportunities in Air & Sea," writes Jefferies in its analysis, referring to Ceva Logistics, which the logistics company previously had its sights on.

"But we think its current owner CMA CGM is under less pressure to reduce debt, after the recovery in container shipping," the firm continues.

In a note regarding the upgrade, Sydbank also assesses that the "record-paced recognition of synergies from Panalpina" accelerates the possibility for the company to start looking for new targets.

Raised price targets

All of DSV's divisions have recently performed so well that they have exceeded the company's own expectations. Friday last week, this led to an upgrade of the company's 2020 guidance.

In the wake of that announcement, analysts from SEB, Jefferies, UBS and Barclays have all raised their price targets for the DSV equity. The same holds true for Nykredit, which has raised its recommendation for the equity to buy, with a target of DKK 1,200.

The stock is currently traded at around DKK 1,077.

Although "DSV presents strong figures," the analyst expected the upgrade. In the second quarter, volumes dropped by double-digit percentages, while earnings soared on the few available departures, particularly within air freight.

"Suddenly, almost all planes in the world were at a standstill, so those that were able to make sure that customers had their goods transported were suddenly able to get prices that were rather significant," the analyst says as an example of how consumers have also become more eager about spending money.

"Looking at the third quarter, volumes are almost back."

DSV's upgrade comes even though the coronavirus crisis means that earnings expectations are subject to more uncertainty than usual, as the company said Friday.

And to some extent the prospects also depend on a gradual improvement of the freight market, and the condition that the global supply chain will not be affected by any further disruptions from the coronavirus crisis.

Share buyback could become relevant again

With Friday's upgrade, Rasmussen sees a solid possibility that DSV may launch another share buyback program. Earlier this year, the company otherwise suspended its buybacks.

"They're accumulating capital at the moment and they don't really have anything to spend it on if this is how to get through Covid-19. And then there are of course different opportunities to look at acquisitions, where Asia may actually be interesting for them," he says.

We will address it (a share buyback program, -ed.) on the reporting day, Oct. 29. So there's still something to look forward to.

Flemming Ole Nielsen, head of investor relations, DSV Panalpina

At DSV, head of investor relations, Flemming Ole Nielsen, does not want to comment on the company's acquisition plans.

"That the notice (about the upgrade, -ed.) does not include information about share buybacks does not mean it will not happen, but that we will address it on the reporting day, Oct. 29. So there's still something to look forward to," he tells ShippingWatch.

English Edit: Ida Jacobsen

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