The president of Portugal’s privatised Post Office CTT, announced lower than expected results on Tuesday and saw the company’s share price plummet 21% in a day.
Luís Pereira Coutinho announced a dividend in an attempt to keep shareholders happy but this was insufficient to overcome fears caused by a worse than predicted slide in letter handling revenue.
CTT’s profits this year have slumped by 57.6% to €19.5 million in the first nine months.
At the start of the year, one share was worth €6.6 and now is trading at €3.97 - the lowest ever recorded.
The company justified earnings 'below expectations' by citing the loss of revenue from Altice, a sharp 7% drop in mail traffic and the expenses associated with setting up the in-branch 'Banco CTT' service.
CTT’s management is working on "measures to adjust the installed capacity to the real operational needs that allow a significant reduction of expenses to be presented by the end of the year," i.e. cost cutting measures that could involve staff lay-offs and branch closures.
Management proposes a dividend of €0.38 per share in 2017, down €0.10 compared to last year.
According to an analysis from the loss-making bank Haitong, the CTT results were "obviously very negative," and the bank no longer feels comfortable with its ‘buy’ recommendation.
"We see that there is a clear problem on the cost side of CTT and we are not sure that management will be able to solve things in a reasonable amount of time," says Haitong.
With the dividend failing to reflect the poor performance of CTT, this high yield is sounding alarm bells. Far from being a well financed company with good trading profits, CTT is buoying up its dividend to attract new investors who are looking only at yield.
With expected profits for 2017 of €35 million (55% below 2016) and with a dividend of €57 million CTT is offering a payout ratio of an unfeasible 162%.
The dividend will drain the company of investment while its shares have fallen well over a third since the beginning of the year.
Comments
In some countries post offices have been granted banking licenses.
While they have little experience with banking, they are thrown a life line solely to maintain employment. Do you agree with this? What if post offices start to sell freshly baked bread and local vegetables? We would call them supermarkets. New technology changes everything. Many aspects of the post office can be taken over by supermarkets. Another benefit is that you need to buy you groceries anyway and they have parking space....
It is rarely, indeed, that I disagree with Peter Booker's views. However, the mail and parcel-delivery service is far from a sunset situation for a significantly large part of any population - one that cannot fully be replaced on-line. Perhaps that's why its internet facilities were phased out? CTT still offers services, such as faxing and copying. I do, however, agree with his good wishes for BancoCTT.