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JEFFERIES released a K+N note on Thursday ahead of Q2 ’20 results.

Here are the key points:

– “2Q20E results on July 21st. We estimate 2Q20E EBIT will be 43% lower at CHF 153m, in-line with consensus CHF 154m. We project sea freight EBIT fell 41% to CHF 73m, driven by a volume decline of 10%-15%, outperforming an estimated 15%-20% lower market, in-line with Maersk’s increased guidance, and a 5% lower yield, due to negative FX and a deteriorating mix, due to lower SME volumes. Air freight EBIT is projected to decrease 22% to CHF 83m, on the back of a 20%-25% volume decline, outperforming an estimated 25%-30% lower market, after volume fell >30% in April, partly offset by a 15% higher yield, reflecting a tight air freight market and an improving cargo mix. Similarly, road freight and contract logistics will be more resilient, with volumes expected to be c.15% lower, after a 25% drop at the end of March at the start of the lockdown.”

– “Keeping the network intact. Kuehne+Nagel said it will keep its network and people in place in anticipation of a recovery in global trade in 2H20E. As a result, we are assuming only limited cost savings in 2Q20E of 2% of opex in air & sea and road, and 7.5% in contract logistics, which employs relatively more temporary staff. Note that Mr Klaus Michael Kuehne, Kuehne+Nagel’s largest shareholder with a 53% stake, hinted in the German press there may be cuts of up to 20,000 jobs, accounting for 25% of headcount, mainly in contract logistics in the US, but most likely referring to Kuehne+Nagel’s 20,665 temporary employees.”

– “Less resilient than peers. There is a large difference in performance between Kuehne+Nagel and its peers DSV & DHL. DSV expects 2Q20E EBIT of at least DKK 2.3bn, more than double the initial consensus, and implying a growth acceleration from 8% y/y in 1Q20, to >40% y/y in 2Q20E, driven by a less severe volume downturn, a DKK 300m-DKK 400m boost from Panalpina’s charter network, after air freight rates surged 2x-4x in May, and Covid-19 cost savings measures and Panalpina synergies. Preliminary 2Q20E results for DHL’s forwarding & logistics operations combined reflected a 6% higher EBIT at a record €280m, driven by a 52% surge in DHL Forwarding & Freight, supported by a tight air freight market, with access to DHL Express’ capacity, partly offset by a weaker 36% lower result for DHL Supply Chain, due to ongoing adverse Covid-19 effects in traditional sectors, such as automotive.”

– “Premium valuation. Kuehne+Nagel shares are 3% lower YTD, outperforming the transport sector by 23%, and are now trading at 20.0x FY21E EV/EBIT, implying a 15% premium to the freight forwarders. We stick to our Hold rating, with a DCF-based CHF 140 PT, resulting in a valuation in-line with peers.”

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