Kuehne+Nagel Hits the Squall

Narrow-moat Kuehne+Nagel KNIN delivered a bumper set of full-year results, with revenue almost doubling precoronavirus levels, and net profits more than tripling. These results came with the warning that the volumes and profit levels in 2022 will not be repeated in 2023, something the investor community is well aware of, given the share price has fallen by almost 30% from its peak during the pandemic. While we will update our forecasts on the back of these results, we do not expect this to change our fundamental view on the stock. Relative to our CHF 196 fair value estimate, we see shares as fully valued at these levels.

In the fourth quarter of 2022 the shine was already coming off the sea and air businesses, that combined generate almost 80% of revenue for Kuehne+Nagel. Revenue in the former fell by 14% year over year as consumer demand waned, and capacity on the supply side improved, meaning customers were no longer throwing money at the company to secure delivery of their goods. Airfreight fared even worse, with revenue declining by almost 40%. This was, to some degree, a result of customers switching back to seafreight from the more expensive option of airfreight, as capacity on routes became available.

After a period of holding all the cards, third-party logistics firms like Kuehne+Nagel are now experiencing a rough patch, as the power balance shifts back to customers, at least partly. This will mean a reversion to more normalized levels of operating profit over the next few years. That said, Kuehne+Nagel remains asset-light and thus nimble, and is well placed to weather the coming storm.