26/04/2024, 14:55 DSV A/S Undervalued In A Challenging Air, Sea And Road Market Environment (DSDVF) _ Seeking Alpha

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DSV A/S Undervalued In A

Challenging Air, Sea And Road
Market Environment (Rating
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Apr. 24, 2024 11:52 AM ET | DSV A/S (DSDVF) Stock, DSDVY Stock | 1 Comment

Dhierin Bechai
Investing Group Leader

Summary
DSV A/S faces challenges in a soft market, with declining revenues, gross
profit, and adjusted EBIT.

The company expects a challenging market in 2024 but sees growth

opportunities in air and sea markets and Solutions segment in 2025.

Despite potential overvaluation, DSV A/S has a good track record and
market fragmentation presents acquisition opportunities for growth.

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26/04/2024, 14:55 DSV A/S Undervalued In A Challenging Air, Sea And Road Market Environment (DSDVF) _ Seeking Alpha

I am Dhierin Bechai. Using my Aerospace Engineering expertize, I provide

a data-driven approach to investing ideas in the growing aerospace,
defense and airline industry. I run the investing group The Aerospace
Forum.

Bjoern Wylezich/iStock Editorial via Getty Images

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26/04/2024, 14:55 DSV A/S Undervalued In A Challenging Air, Sea And Road Market Environment (DSDVF) _ Seeking Alpha

In October 2023, I initiated coverage for DSV A/S (OTCPK:DSDVF) with a buy
rating as I was charmed by the company's successful integration of newly
acquired businesses. However, several months later I had to lower my rating to
Hold as my bullish view on the M&A integration track record did not sufficiently
keep in consideration the soft market conditions for logistics providers. In this
report, I will be reviewing my rating and target based on the most recent
earnings and forward estimates.

DSV A/S Battling The Realities Of A Soft Market

DSV A/S

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The headlines speak volumes about the pressure on logistics providers with
revenues declining 34.1% with gross profit declining 13.4% and adjusted EBIT
declining 27.4%. The company did manage to reduce its costs despite continued
cost inflation, but overall, we are seeing the impact of lower freight rates and
volumes radiating strongly in the results.

Air profits declined 25.5% driven by 16% lower volumes and declining freight
rates. Gross profit for Sea declined 18.9% driven by a 10% decline in unit profit
from Q4 2022 to Q4 2023 while volumes declined 5%. The declines were
primarily driven by continued normalization of freight rates, more capacity
coming online and lower exports from the Asia-Pacific region. Across Air & Sea,
EBIT declined by 33.1%. Road revenues declined 6.4%, but posted a 1.1%
increase in gross profits and flat EBIT showing strong cost management.

Driven by warehouse consolidation and automation, the Solutions segment saw

revenues decline 2.4% but posted 5% higher gross profit. EBIT declined 10.7%
driven by continued cost inflation and weak performance in the Asia-Pacific
region.

Challenges Remain For DSV A/S

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DSV A/S

The guidance for 2024 shows that DSV A/S continues to expect a challenging
market with EBIT adjusted to be down 15% to roughly flat for 2024. The good
news is that the company aims for 3-4% growth in its air and sea markets with
yields stabilizing by year-end. Road is expected to be more or less flat with only
slight growth opportunities while Solutions is expected to achieve better growth
rates in 2024. So, overall, we are seeing some growth opportunities for DSV
A/S, but the recovery will be gradual meaning that full year impacts will only be
visible in 2025 if market conditions have not deteriorated by then. So, overall, we
do see some fragile improvement in market conditions, but EBIT will likely
remain lower year-on-year.

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DSV A/S Stock: Back To Buy

The Aerospace Forum

When I analyzed the results and forward projections, I was not under the
impression that my model would indicate a buy rating for DSV A/S. However, a
buy rating signaling a 74% upside is what rolled out. Even if we value the stock
right in between the median EV/EBITDA multiple for peers and the median for
DSV/AS there still is a 25% upside which I consider attractive. While the markets
remain challenging to navigate, DSV A/S is seeing some improvements and
stabilization in 2024 with better results in 2025.

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DSV A/S

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DSV A/S is trading at a multiple compared to peers and one can argue that the
company is actually overvalued. However, if we consider that the company has
quite a good track record in integrating acquired companies and is the third-
biggest third-party logistics provider measured by revenues things could start to
make sense. Even as the third-biggest player it only has a 4% market share
while the top 20 third-party logistics providers capture 30-40% of the market.
This quite clearly shows that the market is extremely fragmented and DSV A/S is
not the only player facing the soft market conditions. There are likely many
smaller companies that are not able to navigate the current market conditions
due to a lack of scale and that could open up opportunities for DSV A/S to
acquire some smaller companies and integrate those companies to create a
stronger DSV A/S operation.

Conclusion: DSV A/S A Cautious Buy

After implementing the balance sheet data, forward projections, and projected
shareholder returns, I believe that DSV A/S can be assigned a buy rating again.
The market conditions remain challenging, but there are signs of stabilization
and even growth in 2024 with further growth in the years ahead. If those
projections continue to hold, DSV A/S shareholders might see a fruitful entry
point at current prices while continued weakness also allows DSV A/S to
consider mergers and acquisitions to integrate smaller players into its business.

Editor's Note: This article discusses one or more securities that do not trade on
a major U.S. exchange. Please be aware of the risks associated with these
stocks.

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This article was written by

Dhierin Bechai
16.26K Followers

Dhierin-Perkash Bechai is an aerospace, defense and airline analyst.

Dhierin runs the investing group The Aerospace Forum, whose goal is to discover investment
opportunities in the aerospace, defense and airline industry. With a background in aerospace
engineering, he provides analysis of a complex industry with significant growth prospects, and offers

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Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and
no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own
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any company whose stock is mentioned in this article.

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