HHLA reported a resilient performance in Q3 20, posting quarterly revenue of €331m (-5.6% yoy) vs. the 9.4% drop in H1 20 and a strong EBIT margin recovery (15.6% in Q3 20 vs 8.6% in H1 20). The FY20 outlook is maintained while not ruling out a continuation of the recovery in Q4 per se.
Companies: Hamburger Hafen und Logistik AG
HHLA posted declining H1 20 revenue (-9.4% yoy) driven by its container and intermodal divisions (-9.6% yoy and -8.5% yoy, respectively). The container division’s volume was dragged down by increased blank sailings, which, in turn, increased storage times and fees (increasing the division’s ASP). This volume contraction translated into a 74.2% yoy drop in profitability and lower FCF (-34.1% yoy). As for the outlook, the company expects, for FY20, to suffer from a strong reduction in volumes, re
HHLA’s 2019 numbers were pretty much in line with our expectations, but management gives a bleak outlook for the current year as a result of COVID-19 (see our chat from 20 March). Because of this negative outlook, management proposes to cut the dividend from €0.80 paid for 2018 to €0.70, although operating earnings increased while net earnings were only marginally down. The justification given: maintain liquidity.
IFRS 16 had a material impact on HHLA’s earnings, i.e. EBITDA and EBIT were sharply up and stronger than the consensus had expected, but the bottom line is only marginally higher.
Rising container volumes combined with higher ASPs have resulted in strong revenue and profit growth. Container (i.e. the handling of TEUs at the ports) increased volume by 3.8% to 3.77m and the ASP by 1.7% to more than €106. Intermodal’s volume of land-transported TEUs was up by 9.6% to 782k and its ASP increased by 7% to €312. These numbers were not only higher than ours but also higher than the highest consensus numbers.
The Port of Hamburg continues to suffer from the limited depth of the River Elbe. As a result of this and as shipping companies have changed some of their routes, the number of containers handled by HHLA in Hamburg fell by 1.3%. The need to finalise the deepening of the river is becoming more and more pressing. However, this was compensated by rising volumes outside of Hamburg.
Two of the ports we follow have released numbers for the last month and these show falling container handling volumes. This is true for both Singapore (-3% to 2.74m TEUs) and Long Beach (-10% to 597k). These numbers give an indication that trade across the Pacific has come under some pressure.
Up to now, none of the ports on the shores of the Atlantic have given any indications.
HHLA’s shipping traffic overwhelmingly goes to/comes from Asia. The share of TEUs to/from that region represented
It seems to us that Southern European governments are more than willing to open their doors (i.e. ports) to the Chinese. This might change the flow of goods from China into Europe. However, we doubt that this will be very dramatic as the goods have then to be transported by train or trucks from those ports to their final destinations in Western Europe. And this might well be a costly exercise.
The following chart shows good growth for most ports but for HHLA. After a dip in 2015/16, all ports shown in the graph have increased the number of TEUs handled by between 14% (HHLA) and 21% (Singapore) since then. In fact, the most recent trend suggests that trade between Asia and the USA continued rising fast and growth actually accelerated in the last few months.
Simultaneously, the container volume has been about unchanged at HHLA since almost the middle of last year whereas Rotterdam ha
HHLA’s revenue increased by 2.2% to €964m while the EBITDA number was down by 1.7% to €241m, whereas both EBIT and net earnings were up (+0.6% to €156m and +6.1% to €84m, respectively). Revenue was exactly in line with our projections while EBITDA and EBIT were marginally lower, whereas the net profit number is clearly higher than what we had expected. Compared to the group’s consensus numbers, all reported numbers were at the upper end of expectations.
Management seems to have lost some cost control which is indicated by hardly any H1 revenue growth (+1.6%) but sharper personnel (+4.4%) and other operating costs (+12% net of other operating income) increases. This has to be addressed and cash generation has to be another topic for management in the months to come.
The deepening of River Elbe has been a highly controversial issue for many years. Now that all requirements set by the courts (including the European High Court’s decision of 2015) have been fulfilled, the project can start.
HHLA was able to increase the ASPs in both container handling and hinterland transportation. As a result, the group’s Q1 numbers were exactly in line with our projections. As we do not see world trade shrinking in the immediate future, we continue to regard the shares as being attractively valued.
HHLA had given 2017 profit indications earlier that were lower than we had anticipated. These were confirmed today, except that the dividend is raised strongly from €0.59 to €0.67. This suggests that management’s bright profit outlook, inspite of unchanged expected container handling volumes for 2018, has some support.
Transiidikeskuse AS is Estonia’s biggest terminal operator with an annual number of 0.3m TEUs and it also operates bulk and RoRo handling terminals. According to management, the port’s capacity can be increased to 0.8m (HHLA’s container volume is currently in the vicinity of 7.5m TEUs annually). Unfortunately, the two parties have not released any transaction price.
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The group has released a positive trading update with strong trading seen recently in the US along with signs of recovery in Europe and Australia. It is quite unusual for this conservative company to boost its guidance at this fairly early stage in the year, with raised guidance for FY21 leading us to increase our adjusted EPS by 15%. The shares trade on a discount to peers and offer a premium yield. We lift our price target from 435p to 520p, up 20% and offering decent upside to current levels.
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