DHL worker carrying a parcel
Deutsche Post’s diversified structure, focusing on express delivery, makes the difference to its profitability © Bloomberg

Like a spendthrift awaiting a credit card bill in the morning mail, investors expect second-quarter results to bring only bad news. Deutsche Post’s earnings missive, however, had smiley faces written all over it. The German postal group leads its European peers in terms of profitability. Its diversified structure, focusing on express delivery, makes the difference.

Deutsche Post has announced preliminary second-quarter results that actually rose by a quarter year on year, thanks to lockdown shopping deliveries. The outlook is almost as rosy. The postal group anticipates operating profits will come in at €3.5bn-€3.8bn this year, about a tenth more than market expectations.

Free cash flow improved robustly — the first half should be a positive €100m compared with a negative number last year. Deutsche Post also plans to pay its full 2019 dividend.

Charts shows items per capital showing mail volumes per capital are in secular decline

At a time when investors are becoming inured to sob stories and begging letters from business, Deutsche Post has offered optimism. It certainly beats anything from rivals such as Royal Mail, the UK’s misfiring postal group.

This year, Deutsche Post’s shares have beaten its peer group by staying about flat. The stock trades at almost double the forward price to earnings multiple (18 times) of its counterparts. That reflects strong profitability. Gross (ebitda-based) returns on invested capital should be about 11 per cent this year. Royal Mail will deliver closer to half that, thinks Berenberg.

Charts shows Deutsche Post earns more than European peers from B2B ...
Chart shows return on invested capital (%) showing ... and thus generates better returns

Deutsche Post is helped by a sympathetic domestic mail regulator and enviable business-to-business parcels delivery operation in the form of DHL. About three-quarters of Deutsche Post deliveries are in this lucrative category. German rivals have increased lower-margin business-to-consumer deliveries to offset the decline in letter post. That distinction means Deutsche Post shares trade in line with US counterparts FedEx and UPS.

Though Deutsche Post’s shares registered only a small gain on Tuesday, markets should take heart from evidence that at least one “legacy” business is prospering. The group’s diversified strategy of post, express parcels and logistics means any future missives are worth the wait.

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