Research Update: PostNL Downgraded To 'BBB' On Constrained Credit Metrics Recovery; Outlook Stable

PostNL's large cash investment needs to support the profitable growth in the parcels segment, combined with shareholder distributions, subject to meeting the maximum leverage ratio of 2x, will hinder net debt reduction in the medium term. Persistent structural decline in mail volumes, the potential debt-funded acquisition of Sandd (which is not part of our base case), and the authorities' outstanding decision on the significant market power (SMP) policy affecting PostNL's financials add to uncertainty over the timing and magnitude of recovery in PostNL's credit measures. PostNL's earnings growth and benefits from the agreement to sell Postcon and the intended disposal of Nexive subsidiaries will only partly offset the likely further increase in net debt owing to sizable cash outlays, so

...- PostNL's large cash investment needs to support the profitable growth in the parcels segment, combined with shareholder distributions, subject to meeting the maximum leverage ratio of 2x, will hinder net debt reduction in the medium term. - Persistent structural decline in mail volumes, the potential debt-funded acquisition of Sandd (which is not part of our base case), and the authorities' outstanding decision on the significant market power (SMP) policy affecting PostNL's financials add to uncertainty over the timing and magnitude of recovery in PostNL's credit measures. - PostNL's earnings growth and benefits from the agreement to sell Postcon and the intended disposal of Nexive subsidiaries will only partly offset the likely further increase in net debt owing to sizable cash outlays, so that PostNL's weighted average ratio of S&P Global Ratings-adjusted funds from operations (FFO) to debt of about 50% will fall short of our 60% guideline for a '###+' rating. - We are therefore lowering...

Research Update