Inpost SA parcel locker networks and related services: European leading growth company and operator?

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Why I’m opening this thread: below are links from which I think it’s evident that the company is growing profitably in untapped markets and will likely gain a strong market position and a cash machine from its business operations. I would like your help with the valuation.
The firm has massive investments underway, but free cash flow seems to be coming in quite nicely relative to that. Costs are decreasing and EBITDA % is rising?! The share price has dropped from my entry level of 15.5 to the 13.xx level. My holding has simultaneously shrunk to approximately 9k euros and is down 1.5k euros. For me, this is a small position, but I intend to add as soon as I can find the energy to research it / get help from others in evaluating it (it’s a large firm, so there likely won’t be much of an Inderes effect (though I haven’t checked what the Free Float is)).

I want to look into the valuation, multiples, and profitability beneath those investments; otherwise, it looks like a firm for Viljo’s portfolio! @Perttu_Hamalainen @timontti @Pohjolan_Eka @LakeBoodom @Seinakadun_Keisari @Jorelyytikko @Arimatti_Alhanko ! Help, is this too expensive or what? Business growth is intense and seems profitable to me even though investments are massive.

If you own an automated network and expand it first everywhere, you probably get a moat for those own locations; Poland seems to already be maturing into the clink of a cash register!?

START HERE:

Inpost SA (Amsterdam), I will supplement this message later.

The company owns parcel lockers in Poland, the UK, and through an acquisition, at least in France, Italy, and Benelux (minor significance) countries, as well as Spain (minor) and Portugal (minor).

The company also has its own app, the significance of which I haven’t researched in more detail.

I would need some help in reflecting on the company’s potential and future earnings power:

2020 FY before the Mondial Relay acquisition:

Press release
30 March 2021
InPost S.A. announces record full year 2020 financial results and provides 2021 outlook
Luxembourg, Luxembourg – 30 March 2021. InPost S.A1
(“InPost”, the “Company” or together with its subsidiaries
“the Group”), announces full year results for Integer.pl2
for the 12 months ending 31 December 2020.
Full Year 2020 Financial Highlights
• Revenue increased by 104% to PLN 2,532 million
(2019: PLN 1,243 million)
• Operating EBITDA increased by 184% to PLN 994
million (2019: PLN 350 million)
• Operating EBITDA margin expanded by ~1100 bps to
39.3% (2019: 28.2% )
• Adjusted EBITDA increased by 186% to PLN 1,004
million (2019: PLN 352 million)
• Capex increased by 68% to PLN 537 million (2019:
PLN 320 million)
• Free Cashflow increased by ~10x to PLN 380 million
(2019: PLN 35 million) supported by improved cash
conversion
• Ended the year with pro-forma net leverage of 2.4x3
Full Year 2020 Operational Highlights
• Generated more than 180,000 tons4 of CO2 savings
• Parcel volumes increased by 115% to 310 million
(2019: 144 million)
• Total Automated Parcel Machine (APM) network
increased by 47% to 12,254 machines (2019: 8,352)
• Total number of lockers in Poland increased by 78%
to almost 1.5 million
• More than 5.7 million active users of the InPost
mobile app in Poland at the end of 2020
• Rolled out contactless APM deliveries and label-less
returns in Poland
• Accelerated International expansion strategy, with
fourth quarter volume growth of 400% in the UK
Rafał Brzoska, Group Chief Executive Officer of InPost:
“Against the backdrop of the ongoing COVID-19 pandemic, which has fast-tracked the structural shift to the digital economy, InPost
had an outstanding 2020. We took multiple steps to accelerate our pan-European growth strategy and delivered exceptional
financial results.
Parcel volumes more than doubled, the deployment of our APM network continued to gather pace and we rolled out innovations
such as our mobile app, contactless deliveries and labelless returns. Our consumer-centric approach to re-defining last mile deliveries
has seen us revolutionize the e-commerce ecosystem, continuously deliver new consumer experiences, while also generating
significant value for e-tailers. APMs are also the most sustainable form of delivery. Over the course of the year, we generated more
than 180,000 tons of CO2 savings to the environment, while simultaneously reducing traffic and noise pollution.

Below are newer growth quarters and the acquisition; growth is strong!

For a brisk 500 million Euros, the company acquired Mondial Relay under its wing. After EU authorities approved the deal unconditionally.

InPost – Home Latest Quarter, which I don’t think includes Mondial Relay; EBITDA has developed in the right direction, while Capex is a brisk +50%, meaning new lockers are being installed at a frantic pace.

InPost – Home latest presentation.
I recommend taking a look at page 32, the Outlook section; there are good figures on how the business would expand with the Mondial Relay deal!

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First thoughts that come to mind (I haven’t researched in detail yet). How many positive drivers has the growth of e-commerce brought to the company due to COVID-19? Will the sales from brick-and-mortar stores continue to shift online even after COVID-19, or will it continue, but at what pace? Automation is on the horizon, even if e-commerce growth slows down, but how might a potential slowdown affect customers’ purchasing decisions and thus the company’s order book?

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Some free cash flow would be generated if we cleaned up the investment in new automatons; where would we be then? I would say that the Corona pandemic has definitely benefited InPost, but I also believe that development will continue, and if you order goods and have an automaton nearby, you will pick it up from an automaton close by or in your apartment building?

But where would the valuation stand if we took the current stance and didn’t invest in growth, though in my opinion, growth brings a denser network and enables better merchant deals and expansion into several countries? At the same time, it improves the customer experience.

They also have some door-to-door services. I haven’t looked into how they work in detail.

They even report in Zlotys, which is already annoying :smiley:

It feels like all the numbers are developing exactly right, and I think the business logic is good. I don’t believe a competitor will immediately place their own automaton right next to theirs, for example, if these are already quite dominant in Poland?

Once the network is established, I assume the CapEx (capital expenditure) will decrease / or they will just expand more. In any case, an installed automaton probably generates quite a nice cash flow with little effort?

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November 17th is the next Q3 earnings report, so it would be great if we were on track before then :)!

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Inpost has gained a strong position in Poland and is trying to do the same in Britain. E-commerce with its parcels received a permanent boost from the coronavirus. The Swedish assessment I linked below gives a positive picture of the opportunities.

One question, however, might be how such a player can gain a foothold between national postal services and companies like DHL? If the market is underdeveloped (which it might have been in Poland), then yes.

But what about, for example, the Benelux countries mentioned on the list, where, for instance, PostNL and many multinational players already have solid networks and infrastructure? What would be Inpost’s overwhelming competitive advantage in such markets? It’s not entirely clear.

Inpost’s share price has plummeted. Are overhyped growth opportunities colliding with reality, or is this an excellent buying opportunity for a company with huge hidden potential?

https://www.avanza.se/placera/redaktionellt/2021/03/22/inpost-snabbvaxare-med-vind-i-ryggen.plc.html

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That’s exactly what needs to be figured out: is it overvalued, or a great opportunity?

Benulix seems to have come as part of an acquisition, and Montreal Relay’s emphasis appears to be in France.

It’s interesting that the number of parcel lockers per capita was highest in Poland, Estonia, and Finland.

Less elsewhere. DHL packages must be picked up from somewhere, or they are delivered to the recipient.

The company stated that new countries are good in the sense that merchants in the Polish and UK sectors already operate in several countries, allowing for collaboration with them in new countries as well.

Montreal Relay is a relatively new acquisition. The majority of the lockers are in Poland and the UK, especially in Poland.

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With approximately 15.9 million APM users as of March 2021, the Net Promoter Score for the InPost’s APM services was 72% as of April 2021, which is more than two times higher than the overall delivery service Net Promoter Score of our nearest competitor.

Some of the largest merchants in our portfolio include Allegro, Amazon, AliExpress, Vinted, H&M, Inditex, Lidl, LPP, CCC, and Eobuwie.pl.

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There have been fridge lockers in Warsaw since summer :slight_smile:

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their own factory also produces vending machines.
at least 60 logistics centers in Poland.

They also deliver to the door.
Own logistics.
They also store their customers’ goods, etc.

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Their Expansion Capex forecast for 2021, including Mondial Relay, is approximately 1.1 billion zlotys = approximately 238,982,492 euros, or about 240 million euros. And in the UK, they are installing about 100 machines per week!

However, parcel volume has stagnated for a few quarters, which is probably why the share price has fallen… In Poland, that is.

The pace is about 100 machines/week in the UK and 500 machines/week in Poland, if I’m not mistaken.

It’s concerning that the number of packages hasn’t really grown as one might expect, but indeed, perhaps the COVID situation has eased somewhat.

Now we just need to know what kind of seasonality there is in that business and what to expect from Mondial Relay next. There didn’t seem to be a major investment in Italy.

Presumably, a huge number of new machines have arrived, and with COVID easing at the same time, the utilization rate is certainly not as good as one would hope.

Well, at least I now have a rough idea of what to look for with Q3. A few quarters have been quite flat, even though the Y/Y figures look great. The UK is growing, but it’s still small.

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On the other hand, if those 240 million were taken into account in the result (plus whatever profit has been made so far - minus taxes), the P/E would probably be a bit different.

There are 500 million shares and the price is €13.60.

One could perhaps think that if the investments were around 1.1 billion zlotys and free cash flow around 350-400 million zlotys - taxes, then very roughly rounding up to 1.5 billion zlotys, and if that were converted into euros and one thought that the company would pay it out as dividends, then the result would be just over 4% minus taxes. So not the cheapest of the cheap, but if it continues to grow, it’s quite a potential company.

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This whole thing is affected by, like, 1000 factors; here are a few mentioned:

The utilization rate of parcel lockers, for example, 3 years from now (impossible to know). If a single parcel is taken to 1 locker by a truck, the salary costs, fuel costs, etc. for delivery will ensure that every parcel is delivered at a loss. For example, if 1 parcel were taken from Vantaa to a parcel locker in Espoo, with a round trip driving time of 1 hour. Everyone understands that there will be a loss of at least 50 euros for delivering this 1 parcel. If the utilization rate of the lockers is not good year-round and the delivery vehicle is not full, then the equation doesn’t work. The more parcel lockers there are, the more delivery drivers need to be hired, and the more kilometers are driven, even if the number of parcels increases as a counterbalance.

Who handles the trunk line transport between countries, for example, if an e-commerce order comes from Poland to the UK? DHL’s and other large companies’ own transport network in Europe is likely quite formidable; good luck challenging this with your own trucks. If, on the other hand, inter-country transport is bought through DHL, for example, then Deutsche Post is unlikely to give a very cheap price to a competitor.

Own logistics centers? Are there 1, 10, or 100 of these in different countries? There needs to be millions of parcels; otherwise, there will be so much downtime that these centers will incur massive losses due to inefficient operations. No one knows what the parcel volume of these centers will be in 5 years.

If the parcel locker network starts working well in Europe, do you think Royal Mail and Deutsche Post will just stand by and do nothing? Most likely, a price war will start, where it will be seen who runs out of money first and goes bankrupt. Or the competitor will have to deliver parcels at zero margin for the next X years.

Answers to these questions cannot be found by glancing at some company’s financial report. These are all future matters; it’s pointless to try to dig them out of historical data.

As a point of comparison, consider Postnord in Finland; its operating profit margin last year was 0.4% of revenue. :slight_smile:

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Management purchases:

|10 Jan 2022|A&R Investments Ltd|Company affiliated with Rafał Brzoska, CEO|Purchase|Euronext Amsterdam|100,000|EUR 8.652|EUR
865,243.10|
|10 Jan 2022|A&R Investments Ltd|Company affiliated with Rafał Brzoska, CEO|Purchase|Euronext Amsterdam|50,000|EUR 8.835|EUR
441,736.20|
|10 Jan 2022|A&R Investments Ltd|Company affiliated with Rafał Brzoska, CEO|Purchase|Euronext Amsterdam|75,000|EUR 8.778|EUR
658,378.05|

The last ones were at levels of 10+ and 9.5.

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|11 Jan 2022|Ralf Huep|Member of the Supervisory Board|Purchase|Euronext Amsterdam|120,000|EUR 8.382|EUR
1,005,812.64|
| — | — | — | — | — | — | — |
|11 Jan 2022|A&R Investments Ltd.|Company affiliated with Rafał Brzoska, CEO|Purchase|Euronext Amsterdam|100,000|EUR 8.330|EUR
832,974.80|

Again, almost two million euros in management purchases. Different person this time.

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CEO on a shopping spree, was the price around 6.8x on Jan 24 with 1.6 million in purchases… last time it was 8.xx.. at least the management is buying… maybe I should buy some too.

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|31 Mar 2022|A&R Investments Ltd.|Company affiliated with Rafał Brzoska, CEO|Purchase|Euronext Amsterdam|150,000|EUR 6.265|EUR
939,726.45|
| — | — | — | — | — | — | — | Management buying again.

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Are we already seeing some good results here?! Even though there are heavy investments underway, there is also debt. I somehow thought that once the postal vending machine network is up and running, it would be a cash cow generating cash flow, if new machines weren’t added at a furious pace.

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Inpost released their results today. From what I understand, the growth is quite good, but there are inflationary effects.

I need to look into it more closely. Something was visible on the NetProfit line as well.

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Based on the highlights, things are progressing really well! I’ll take a closer look when I have more time. I hold a position of 1% of my portfolio.

After reading more closely, I find that the business is progressing well, but investments and debts are large, and debt servicing costs are high.

From what I read in the report, price adjustments were only made at the very end of Q4, and they are guiding for increasing profitability.

Cash flow has been directed quite heavily towards expansion, which doesn’t bother me at least. Poland is generating cash flow nicely.

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