Neopost (NPACY, Financial) is the number two mailing solutions company in the world. Like most companies in this space, it has been suffering as people have transitioned to email and text message. The stock is owned by FPA Crescent.
Neopost has a market cap of €617 million ($703 million). It earned €3.72 per share and the price to earnings ratio is 4.8. The dividend is €1.70 and the dividend yield is 9.5%. It takes $1.14 to buy one euro.
The balance sheet at the end of January shows €75 million ($85.5 million) in cash and €249 million ($284 million) in accounts receivable. The liability side shows €113 million ($129 million) in short-term debt and €775 million ($883.5 million) in long-term debt. The balance sheet is pretty decent. Cash did decrease €329 million ($375 million) in part due to acquisitions. Debt decreased €232 million ($264.5 million).
Cash flow from operations were €150 million ($171 million), capital expenditures €86 million ($98 million) and free cash flow was €64 million ($73 million). The company has ample free cash flows to cover debt and dividends, at least for now.
Sales were €1.19 billion ($1.36 billion) and were up 6.9% and an absolute basis but down 1.2% on an organic basis. Sales were up due to currency fluctuations. EPS was down 4.4% year over year. The Mail Solutions Division sales were down 5.3%, while Communications and Shipping Solutions were up 11.4%.
Neopost sells equipment such as mail sorters, postage machines, letter openers and scanning machines. The Software Division sells optimization mailing hardware, shipping software and various types of data management. Neopost signed a new contract with Royal Mail to run its mailing services, which is the second largest provider of mailing services in the world.
The stock trades at a PE of 4.8 and dividend yield of 9.8%. Its free cash flow yield is about 10%. If I thought sales would go flat, I’d say buy. I’m concerned that sales, earnings and cash flows will atrophy. Evidently, the markets agree with me (or I with the markets).
You can see the challenges Neopost faces. People around the globe are using the mail much less frequently. Emailing and texting has replaced snail mail for most folks, though no doubt shippers like FedEx (FDX, Financial) and UPS (UPS, Financial) are doing well. Neopost is focusing on helping businesses completely go paper-free with scanners, printers, and other things that will help streamline business. The company reminds me of how NCR (NCR, Financial) went from cash registers to high tech equipment like ATMs. Pitney Bowes (PBI, Financial) is the number one company in this space. It, too, has seen sales shrink over the years.
I wouldn’t buy the stock. I love value but don’t like buying buggy whip manufacturers when they’re on sale. If Neopost was to make it, they’d probably have to spread into an industry that had nothing to do with mail. My guess is that the stock goes lower. It could get bought out or broken up. I might be open to owning the debt or buying the stock when it’s €1 a share.
