News / In the value hunt, DSV is still targeting DSV

ID 52004538 © Everett Collection Inc. | Dreamstime.com

Of all the capital deployment tools at its disposal, Danish forwarder DSV is still intent on shrinking its share count instead of growing inorganically via deal-making or rewarding shareholders with higher dividends.

Meanwhile, a useful recap: its recent announcement of the NEOM JV in Saudi Arabia, combined with news of the (late 2024) departure of CEO Jens Bjørn Andersen, has contributed to stock market weakness and value destruction*, as investors wonder what could be next for the M&A-focused forwarder.

(*At its existing level, Dkr1,070, DSV still trades far away from the Dkr1,299.5 in is own stock it offered in 2021 to Agility GIL to take it over for over $4bn.)

Previously on Premium:

1) “DSV staff on the radar — from Panalpina to a painful cycle” (14/11/2023)

2) “DSV, Kuehne, Mærsk & DHL — only one model rocks in the down cycle” (22/11/2023)

3) “M&A and away as Kuehne stays ahead of DSV” (29/11/2023)

Of all these elements, its preferred capital allocation lever remains stock repurchases, which typically serve two core purposes: provide higher liquidity to the stock; and propel earnings per share, if the repurchased stock is held as treasury holding and then cancelled from the total shares outstanding.

In very simple terms, the average price that DSV pays for its own stock continues to bolster the freight forwarder’s share price at relatively low levels, currently 13% above its previous sub-Dkr1,000 trough this year.

Over recent months, DSV has concluded one share buyback scheme (valid from 25 July to 23 October), spending just under the maximum of DKr4bn ($583m) between the start of the scheme and 20 October, and then launched a new programme, capped at DKr2.5bn ($364m) and ending early next year.

Apart from buyback yield-driven considerations, looking at the average transaction price (ATP) over the company’s past eight share buyback announcements – and comparing it with the company’s stock value on the day of publication – the share price deviates by a maximum of +17.46%** against the average transaction price, as shown in the table below.

(**This occurred on 20 October, as the market digested the announcement two days earlier of CEO Anderson leaving in Q3 23.)

(Source DeskOne)

The close relationship between the two is shown by the following chart:

(Source DeskOne)

One possible explanation is that, in the hunt for value, investors are closely monitoring DSV’s ATP from buybacks as a ‘value proxy’, or sentiment gauge, for their own transactions, as well as looking to buy and sell stock based on DSV’s opportunistic behaviour in targeting DSV itself.

Stretching brains, that happens, one may also argue, in a similar way to how one might use analysts’ consensus on DSV’s future share price and the actual stock price – trading or looking to trade the spread between two variables, that is. In a convergence trade, on a merely hypothetical basis, one may be tempted to ‘short consensus’ and go ‘long DSV’, for instance.

The average transaction price from buybacks and the share price have been significantly more aligned in recent times than DSV stock value and consensus share price, as the following table shows.

(Source MarketScreener)

Over the period highlighted in red (3 October to 4 December), DSV’s target price, according to S&P Global Market Intelligence, has remained higher than the actual share price, diverging between +12.7% (10 October) and +45.13% (25 October, the day after DSV talked-up NEOM in its Q3 23 update).

While buyback prices are likely to continue to support value at low levels, it may be worth paying attention to possible ‘spread events’ like 20 October, going forward. That’s because, if you trust DSV’s self-valuation according to its ATP, it’s a useful way to gauge whether a sudden drop/rise in its share price is the product of market insight, or hysteria.

However, to learn more about that, and before placing any bets, you must call your broker for advice!

This article is brought to you by DeskOne, Loadstar’s Premium’s new resource for instant takes on key events in transport and logistics, including shippers, trade and markets.