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.
