We see the following risks to our target price:
Competition - Barriers to entry and investment requirements in last-mile delivery are low, and hence Aramex could face greater than expected competitive pressures from smaller players, start-ups, or government-backed post offices. Globally many of the company's competitors have significantly greater financial and other resources available, like in-house fleets of planes, which could see Aramex struggle to compete on pricing and reach, especially given current disruptions.
Operational - The greater availability of local e-commerce products could see international express volumes (especially of Shop & Ship) affected, while a shift by local online retailers away from 3rd party delivery could reduce demand for last-mile services. Margin volatility and higher finance expenses coupled with weak volume growth could create downside risk.
Macro - Aramex's freight business remains highly dependent on the global macro and trade environment; a slowdown/increase in economic growth or increase/reduction in protectionism could weigh negatively/positively on revenues and margins.
If the impact from any of these factors proves to be more negative than we anticipate, the stock will likely have difficulty achieving our financial and price targets. However, if any of these factors proves to have less of an effect than we anticipate, the stock could materially outperform our target.
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