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V-shape recovery? Good news - it''s played out exactly as expected In our May-2023 Global Trade Tracker report, V-shape recovery? Already happening, we predicted a V-shape recovery in US container imports. This has now played out, with volume growth of 30%+ in February (Fig 1). Relative to the 2018-2019 average baseline, US imports are currently running in the mid-teens, in-line with our previous forecast (Fig 2). That''s the good news... The bad news is that volumes will now likely disappoint, as per our recent Globalisation report The bad news is that global volumes are now likely to disappoint into the 2030s - especially on the east-west routes key to our Freight/Logistics coverage. This is consistent with our 27-March report, GLOBALISATION: Time''s up. Trump or not, in which we concluded globalisation has likely gone too far with respect to trade in goods. If you have exposure to the Freight/Logistics space but have yet to read this report, we recommend you do so ASAP - certainly well ahead of the 5-Nov US election. US volumes have now fully recovered, but may soften due to rising protectionism Our modelling shows US container imports have returned to a level consistent with underlying economic activity, supporting the view that de-stocking has played out. But will volumes rise further? Quite possibly not. With net household wealth having eased and protectionism likely to rise, a levelling-off appears likely - and potentially a pullback in the event of a Trump victory. Without the US, what''s left? European and Asian imports have seen minimal growth for years Excluding US imports, global container volumes have seen no growth since 2018 (Figs 3-4). As such, if US growth stalls, what''s left? European container imports have lagged GDP by 10pp post-pandemic (Fig 6), while Asian container imports have seen no growth since 2012 (Figs 7-8). The relationship between global container volumes and GDP has also broken down (Figs 9-10). Suffice to say, with...
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Following our 27-March report GLOBALISATION: Time''s up. Trump or not, our marketing throughout the United States consistently focused on 10 key charts - highlighted in this note. Problems caused by US trade policies may be new to many investors, but not Mr. Buffett The US'' trade deficit in goods is currently running at c.5% of GDP and rising (Fig 1). As per any entity that spends more than it earns, a deficit must be funded, with the US'' accumulated trade deficit accounting for the majority of its USD34tn national debt (Fig 2) and NIIP equating to 13% of total net wealth (Fig 3). Our marketing didn''t extend to Omaha, but none of this would have surprised Warren Buffett, who predicted these issues would be problematic in 2003 (link). The belief that globalisation has gone too far appears likely to rise, driven by wealth shifts Survey data shows that even in 2021 (since which time support for globalisation has declined), just 48% of people agreed globalisation was good for their country (Fig 4). In the US, only 42% agreed - hardly a shock with the richest 1% of households now accounting for 40% of wealth (Fig 5). With McKinsey predicting that automation could displace 30% of US work hours by 2030 (Fig 6), the possibility that this trend will continue is clear - a historical red flag for international trade. If ''trade war'' concerns rise, sentiment risk for the Freight/Logistics space is clear Our prediction that freight volumes could now decline was described as a ''big call'' by investors. We don''t think it is. Relative to global GDP, trade in manufactured goods has been flat since 2008 (Fig 7) despite China''s trade surplus continuing to rise (Fig 8) - a trend Western politicians are keen to end. It requires little imagination to believe freight penetration will now decline. Awareness among investors that the US has maintained high import tariffs throughout most of its history was low (Fig 9). Nonetheless, if fears around higher tariffs rise, the...
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That globalisation has gone too far is not a minority view; ordinary folk have known it for years. We think they''re right. Proposals for US tariff hikes have been described as ''lunacy'', ''horrifying'' and ''radical''. But why? With a spiralling trade deficit, surely leaving US trade policy unchanged would be radical. Even after 19 years covering the Freight space, the work behind this report has led to a step-change in our understanding. Sadly, the more work we did, the more bearish we became. Freight investors have never needed to consider a world where trade volumes go backwards, but that needs to change. With headwinds likely, we downgrade FedEx (-) and CHRW (=), leaving DHL (+) the only positive rating among our nine stocks.
Readthrough from Hapag-Lloyd''s preliminary figures was negative for Maersk Ahead of Maersk''s FY23 results next Thursday (8-Feb), we assess the readthrough from Hapag-Lloyd (not covered), which released preliminary figures yesterday (link here). Hapag''s average revenue per TEU unsurprisingly continued to fall in Q4, which combined with unit cost increases driven by lower volume (due to Red Sea disruptions) resulted in an EBIT loss of c.USD200m. By comparing profitability on a per unit of capacity basis, we estimate Maersk''s Ocean division could report a Q4 EBIT loss of c.USD950m. With consensus indicating a loss of USD731m, risk appears to the downside. Hapag''s Q4 results showed an ongoing deterioration in profitability Hapag''s average revenue per TEU was unsurprisingly down significantly YoY, by -52%. Sequentially the decline was much more limited at -4%, but with unit cash opex +6% QoQ the squeeze on EBITDA continued. With volumes down sequentially by -4%, Hapag''s Q4 EBITDA declined by 56% QoQ due to strong operational gearing (see Figure 1), causing EBIT to turn negative (see Figure 2). Our per unit of capacity analysis suggests a potential EBIT miss for Maersk Ocean For comparing profitability between container shipping lines, we tend to use capacity as the denominator. Measured in terms of either EBITDA or EBIT, Maersk and Hapag exhibited a close relationship pre-pandemic before diverging over the past three years, with Maersk significantly under-earning (see Figures 3 and 4). Hapag''s EBITDA per unit of capacity declined by -57% sequentially in Q4. Applying this delta to Maersk''s Ocean division suggests Q4 EBITDA of c.USD475m, which we estimate would equate to an EBIT loss of around USD950m. With consensus estimating Ocean EBIT of USD-731m, risk next week broadly appears to the downside.
AP Moeller Maersk A.P. Moller - Maersk A/S Class B
In conjunction with our Freight Forecaster report published this morning [LINK] we are downgrading from Outperform to Neutral; TP reduced from DKK20,000 to DKK15,000 Maersk has been the best performer within the European Freight and Logistics sector during the 2020s to-date, providing a 120% TSR. Following the recent bounce in spot rates we have received multiple enquiries as to whether Red Sea problems may prove the equivalent of ''another Covid'' for container shipping profitability. Our answer is simple - No. Indeed we doubt the recent USD10bn increase in APM''s market cap will prove justified by the recent jump in spot rates. As such, while Maersk remains cheap fundamentally, we see the recent bounce as an opportune moment to take profits. If spot rates pull back, which we think is likely over the coming months, APM will likely pull back too. Be careful what you wish for; bad news is usually just that We find it interesting the Street has concluded the recent Red Sea problems will prove a major positive for the container lines. In the near-term supply-demand will certainly benefit, but in general geopolitical bad news usually proves to be just that. The pandemic is the only exception we can think of in this respect. War in the Middle East will inevitably provide negatives as well as positives. Recent USD10bn market cap gain equates to 5m FFEs based on recent spot rate bounce Dividing the USD10bn gain in APM''s market cap by the USDc.2,000/FFE gain in spot rates suggests the Street believes 5m FFEs will capture this uplift, roughly 40% of Maersk''s annual volume. We doubt this will play out; partly because we suspect the spike will prove transitory, and partly because c.70% of Maersk''s volume is on contract, many of which were agreed before the recent rate spike. Valuation: APM currently trades on 0.96x EV/IC ex-cash, in-line with pre-Covid average On any asset-based metric, APM remains cheap. But so long as it continues to hoard cash and the...
Red Sea problems have little in common with the pandemic, for supply or demand Following a volatile start to the decade we were hoping for a quieter year in 2024. Chance would be a fine thing. With the 31-Dec attack on Maersk Hangzhou leaving 10 dead and the Red Sea all but closed, in this report we assess the implications. Our main conclusion is simple - that investors should be careful what they wish for. Following the experience of the pandemic, we fully appreciate why freight rate spikes cause excitement among Container shipping and Forwarding investors. But current Red Sea problems share few similarities with the pandemic. Indeed we note that geopolitical bad news typically proves to be just that for the Freight and Logistics space. As such, following the recent surge in valuations, our stance on the sector becomes incrementally cautious. Our analysis strongly suggests volumes will continue to strengthen in 2024... While numerous CEOs bemoaned weak end demand last year, the real headwind for freight volumes was inventories. The good news is that de-stocking faded as 2023 progressed and will have much less of an impact in 2024. The bad news is that for some of the stocks we cover, de-stocking provided a smoke screen for market share losses, which we believe will become more evident this year. ...but that overcapacity will restrict freight rates, with recent spot gains likely to be transitory Contrary to reports predicting that higher freight rates could significantly impact inflation, we doubt this will happen. Even if all Red Sea container traffic is routed around Africa, the impact on global capacity would be 5-6%; insufficient to cause tight supply-demand given existing overcapacity. Either way, our analysis suggests the recent spike in spot rates will prove transitory. Downgrading Maersk and Expeditors, with DHL and CHRW our only remaining Outperforms We downgrade Maersk to Neutral and Expeditors to Underperform, leaving only two Outperform...
The Q3 23 was broadly in line with expectation. EBITDA dropped to $1.9bn o/w $1.1bn in Ocean due to lower average freight rates (-58% yoy and -14% sequentially). Earnings were disappointing in Logistics & Services and resilient in Terminals. The Group did give some negative indications. The 2023 guidance is now at the low-end of the range (EBITDA of $9.5bn, EBIT of $3.5bn). Considering the risk of more overcapacity, the restructuring was stepped up, capex was revised downwards and the share buyback policy is under review.
Container volumes are back to normal, with the new normal resembling the old normal Several of the stocks under our coverage have expressed frustrations with respect to weak end-demand over the past year; most notably the Forwarders and Container lines. During late-2022/early-2023 this sentiment was entirely fair, but not anymore. The V-shape recovery we predicted in our 25-May report is playing out, with global container volumes now running at +6% versus pre-pandemic levels and US container imports +8% - see Figs 1 and 2 respectively. Over a period of four years, these growth rates are distinctly normal. Indeed considering the dilutive impact of ongoing inventory de-stocking, we would argue they are rather good. US imports are now +8% versus 2018-2019 levels despite ongoing inventory de-stocking US container imports are now +8% versus the 2018-2019 baseline; a major improvement from the -6% trough seen in late-2022/early-2023. When inventory headwinds fade, our analysis continues to suggest this delta will settle in the mid-teens. Either way, the recovery in US imports will soon become more obvious, with YoY growth now positive (Fig 3) and likely to rise to +20% for Nov-Dec. European imports are back to flat, while East-west head volumes are +7% vs. pre-Covid Unlike in the US, where container imports were +20% vs. pre-Covid levels in 2021, this was never the case for Europe where the corresponding delta was just +3%. This was followed by a c.6% slump following Russia''s invasion of Ukraine, but normality has now returned with recent European import volumes back in-line with 2019 levels. East-west headhaul volumes overall are currently +7% vs. 2019 levels while North-south headhaul volumes are +11% (Fig 4), equating to CAGRs of +2% and +3% respectively over four years - developments that are entirely normal. Some of our stocks are seeing weak volumes due to market share losses, not weak markets Our recent discussions with investors...
Reiterating Outperform; TP unchanged at DKK20,000 We are often asked whether Maersk''s ''Integrator strategy'' will succeed. Our answer is clear - that it has already failed. This response tends to surprise investors, but when one considers our estimates which suggest Maersk has invested USDc.33bn in its Global Integrator Strategy (both directly and indirectly) over the past four years, reaching this conclusion is unavoidable. Given we never priced in any benefits from this strategy, there are no implications for our DKK20,000 fair value (which is mainly based on assets rather than earnings). It is nonetheless frustrating that APM could/should have printed way more cash since 2020 than the USD56bn FCF we estimate. We estimate the Global Integrator strategy has cost USD33bn to-date, with scant reward In addition to the USD9bn APM has spent directly on MandA and capex, we estimate it has invested USDc.24bn indirectly by focusing on contracts at a time when spot rates were red hot in the belief this would bolster the Global Integrator strategy. While this was never a strategy we supported, it did seem likely that Maersk would recoup some of this investment when spot rates normalised. That this has yet to happen, and indeed is not expected to happen based on implied H2 guidance, is genuinely remarkable. But given we never priced in any benefits from the Integrator strategy, there is nothing to cut. The USD0.5bn EBIT we estimate the Logistics division will produce this year equates to 4% ROIC, but if we were to include the USD24bn indirect investment, the figure would be just 1%. Even allowing for APM''s failure to maximize value, we think current valuation is undemanding That the Street is pricing APM on core EV/IC 1x is understandable. Not only is container shipping in a down cycle, but APM''s failure to maximise shareholder value is clear. The good news is that the new CEO is less focused on inorganic growth, but the main debate is whether Maersk...
The container shipping and logistics market was impacted by the reduction of inventory in Q2 23. AP Moller-Maersk posted an honourable performance with EBITDA of $2,905m (-72%) or 22.4% of revenue. In Ocean, cost management mitigated the impact of lower volume (-6%) and average freight rates (-51%). The Terminals business delivered satisfactory results while the Logistics & Services division was disappointing on the revenue trend and EBIT. There is no sign of a volume rebound in H2 23.
US container imports have already seen a V-shaped recovery; a surprise to many A common question we have received in recent weeks concerns the outlook for freight volumes. Will a recovery happen, or not? Our response has typically involved showing investors Figure 3 and explaining that a ''V-shape'' recovery in US container imports is already happening - an observation that has typically surprised. As the chart shows, US container imports over the past several weeks have averaged almost +10% versus the 2018-2019 baseline; a significant improvement versus -6% for the prior five months from Nov-2022 to Mar-2023. Quite simply, the ''V-shape'' is forming. We believe two factors explain why this shift has gone unnoticed by the Street We see two reasons why the Street has missed this upswing; (i) its primary focus on YoY comps, with US container port imports -20% in April; and (ii) a reliance on monthly port volume data, which is significantly lagged relative to our real-time data for US inbound volumes. Essentially, the Street''s view of US imports is summarised by Figure 1, which shows no meaningful improvement as of April. With de-stocking headwinds set to ease further, our expectations remain broadly unchanged In our 13-April Supply Chain Disruption report we included detailed analysis on US/European inventories, concluding that while de-stocking would drag on for longer than expected, the worst has passed during Q4/Q1. The recent spike in US imports, together with March being the first month during which European imports exceeded the 2019 baseline for over a year (see Figure 12), suggest global container volumes will continue to strengthen as 2023 progresses - see Figures 14-21. Our stock preferences also remain unchanged; long-asset heavy/short-asset light Given Street macro concerns for H2, we find it is consensual to be long asset-light operators and short asset-heavy. This may have worked in 2008-2009 but we doubt it will work now; quite...
There were no suprises in Q1 23. Lower freight rates and volume pushed down group EBITDA to $3,969m (-56%), of which $3,352m in Ocean. The Ocean division benefited from a positive effect of previous contracts at high rates which will be reduced in Q2 23 and disappear in H2 23. The reduction of inventories at retailers in North America and Europe impacted volume in Logistics & Services and Terminals. 2023 guidance is unchanged.
Q1 estimates appear reasonable, with potential for upward revision to guidance Maersk will report its Q1 results next Thursday, with our analysis suggesting EBITDA of USD3.8bn, similar to Visible Alpha consensus of USD3.7bn. With FY23 EBITDA guidance at USD8-11bn, it is possible the low end could be raised, though with the run-rate set to ease as 2023 progresses, it is equally possible that this may be saved until later in the year. An increase to the FCF guidance of USD 2bn appears more likely however, with our USD8bn estimate standing at c.4x this level. BNPPE vs. consensus FY23 EBITDA makes little difference - either way, APM is too cheap Our FY23 EBITDA estimate remains unchanged at USD13bn, versus consensus at USD10bn. The difference may appear large, but from a valuation perspective this is not the case. Put simply, if our forecasts prove accurate, we estimate end-2023E core EV of USD25bn, whereas if consensus estimates are more accurate core EV would be USD28bn. For core EV/IC, the corresponding figures would be 0.35x and 0.41x respectively; in both cases around half the average historic trough of 0.74x (for which the 0.69x to 0.82x range is narrow; see Figure 5). In other words, BNPPE vs. Consensus is the difference between a number that is slightly less than half the historic trough and a number that is slightly more. In the grand scheme of things, does it really matter? Our analysis shows contract rates continue to be agreed at levels well above spot As outlined in today''s FREIGHT RATE FRENZY: Theory vs. Practice: Insights from Einstein, our analysis shows that contracts continue to be agreed at levels significantly above spot rates - an unchanged conclusion from our 1-Feb report. Given Maersk''s higher-than-average exposure to contracts this is certainly helpful. From a valuation perspective however, we reiterate that whether Maersk makes USD13bn or USD10bn EBITDA this year, it is too cheap. As outlined in our Let''s cut the scrap...
If you would like to receive our Global Container Freight Rate database in Excel each quarter, please contact us by clicking here. ''In theory, theory and practice are the same. In practice, they are not''. Albert Einstein Following our previous Freight Rate Frenzy report from 1-Feb, Moment of Truth (part 2), we received some pushback that the main conclusion of the report - that contracts were being agreed at levels well above spot rates - could not possibly be correct. The feedback was essentially along the lines of ''Why would anybody agree a contract at a premium to spot?'' In theory this may make sense, but in practice there are valid reasons why contracts may be agreed at a premium. Three months on this dynamic remains unchanged, albeit the differential between global weighted-average contract and spot rates has reduced from USDc800/FFE in early-Feb to USDc500/FFE today (see Figs 15-16). Following the recent bounce, will spot rates continue to rise? Probably, yes. Following the recent spot rate bounce, we are frequently asked whether this trend can continue. In the near-term our answer is yes, for four reasons; (i) seasonality is favourable during April-July; (ii) headwinds from inventory de-stocking are likely to ease over this period; (iii) capacity withdrawals are increasingly helping; and (iv) the fact that on a fuel-adjusted basis, the recent trough in spot rates was simply so low - the ex-fuel SCFI Index for example recently troughed in-line with the 2018-2019 average level despite cost inflation of c.20% in the interim. Given our view that spot rates will normalise at around the 2018-2019 level on a real basis, this does suggest some near-term upside. Our analysis suggests 2023 average unit revenue -46% vs. 2022 but +86% vs. 2019 Four months into the year and with most contracts agreed, visibility on 2023 average unit revenue has improved significantly, with our analysis suggesting USD2,380/FFE, slightly above our 1-Feb estimate...
Reiterating Outperform; TP reduced from DKK23,727 to DKK21,000 (70% upside) We get it. You don''t want to recommend a container shipping company to your PM when spot rates and supply-demand are weak. That''s fair enough, but fortune generally favours the brave when investing in the Freight/Logistics space. This gives the impression that Maersk has been some kind of laggard however, as opposed to the reality that Maersk has produced the highest return of all our Freight and Logistics stocks during the decade so far (and yes, that includes DSV - see Figure 1). With current valuation so cheap that APM would be worth more if management scrapped the ships and sold the containers (an option that holds low appeal with our estimates suggesting FCF of USD8bn this year), this outperformance will likely continue. We evolve our valuation methodology to a SOTP in which we price Maersk''s Ocean division on its second-hand value, which we consider highly prudent but in-line with the Street''s caution on the name. But even this provides 70% upside to the current share price. Our 1-Feb conclusion that contract rates are being agreed above spot remains unchanged When we published 1-Feb Freight Rate Frenzy report (link here), the conclusion that contracts were being agreed at levels above spot rates was greeted with scepticism. Yet two months later and with more data, the conclusion remains unchanged. Indeed our 2023E EPS has risen slightly. Valuation: our SOTP prices Ocean at its 2nd-hand value, and everything else on 10x EV/EBIT We estimate the second-hand value of Maersk''s ships and containers at USD13.7bn and USD5.8bn respectively, giving USD19.5bn total. Together with USD3.2bn for the hub terminals this gives USD22.7bn for the Ocean division in total. Pricing everything else on 10x EV/EBIT (or 10x P/E for associates/JVs) equates to USD19.2bn, giving a total EV of USD41.9bn. Adding end-2023E net cash (inc. leases) of USD7.3bn gives an equity value of USD49.2bn,...
Adieu, Auf Wiedersehen, farvel. We''ve been the Cassandras of global supply chains for much of the past two years. But now we bring better news, waving goodbye to anchored ships, broken schedules and empty shelves. That things have improved is well understood, but could Street estimates be behind the curve nonetheless? We think so. We forecast that freight costs will roughly halve this year, with the opex tailwind set to work its way around the world economy - perking up retailers/manufacturers, cheering consumers (maybe central bankers?), but more importantly providing opportunities for investors. We dive into the detail and bring together 10 of our top-ranked sector teams for a global view of supply chain healing, identifying the winners and losers and including a basket of 21 stocks that are key beneficiaries.
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Q4 22 EBITDA was in line with expectation with a decrease to $6,540m (-18%). In Ocean, volume dropped by 14% due to lower consumption and the reduction of inventory at retailers, and average freight rates declined by 3.5% yoy, turning down sequentially by 23% (vs +1.3% in Q3 22 vs Q2 22). Maersk had strong free cash flow of $27.1bn so that the proposed dividend is up 72% to DKK4,300/share. 2023 guidance includes EBITDA in the range $8.0-11.0bn.
If you would like to receive our Global Container Freight Rate database in Excel each quarter, please contact us by clicking here. The real-time ''moment of truth'' concerns contract rates, which remain well above spot In our previous Freight Rate Frenzy report from last August (link), we predicted ''the next 3-4 months will provide a ''moment of truth'' on the extent to which container shipping discipline has - or has not - improved.'' With ex-fuel spot rates now firmly back to 2018-2019 levels, to conclude industry executives failed this test with flying colours would be entirely fair. Spot rates arguably do not tell the full story, however. With inventory de-stocking having accelerated since last summer, the consequent volume weakness made spot rate weakness inevitable (as outlined in our recent Global Trade Tracker report, we estimate US/European container imports declined by -17% YoY in Q4). In this context, the real-time ''Moment of Truth'' does not concern spot rates, but rather contracts, which our analysis shows are being agreed at levels significantly above spot - see Figure 15. Our analysis suggests contracts are being agreed at USD3,030/FFE, +37% vs. spot rates With a good number of contracts for 2023 now agreed, our analysis suggests an average level of USD3,030/FFE for Intercontinental routes; -40% versus the corresponding USD5,190 seen a year ago but +120% versus the 2018-2019 average. Perhaps more importantly with the Street focused on spot rates, this is +37% versus our corresponding spot estimate of USD2,220/FFE. It is of course possible that new contracts will be agreed at lower levels as 2023 progresses, but in previous years rates agreed during January have generally remained stable throughout subsequent months. Average unit revenue in 2023 could be +80% versus 2019, suggesting robust FCF for Maersk From the shipping lines'' perspective, forecasting 2023 unit revenues just one month into the year is imprecise to say the least. But if...
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Another quarter, another beat? BNPPE Q4 EBITDA of USD8bn +14% vs. cons USD7bn Maersk will report its Q4 results next Wednesday, with our analysis suggesting EBITDA of USD8bn, +18% versus the USD7bn consensus/guidance, which if correct would mark the 8th consecutive quarterly beat. We estimate FY22 EBITDA of USD38.4bn, close to the USD40bn we thought possible in June last year when guidance was just USD30bn (The Big Four-Zero?), and forecast FY22 FCF of USD29bn, almost double management''s original guidance of ''above USD15bn''. We estimate this will leave the balance sheet with USDc.30bn of cash, equal to 6x the USD5bn held at end-2019 and the highest in APM''s history by a country mile. It''s almost like 2022 was a rather good year.... A word to the wise on FY23 guidance... Maersk''s guidance track record is not very good The Street''s focus will be on FY23 guidance rather than Q4, with bears jumping on the conservative guidance new management will likely provide. A word to the wise in this respect however, as also outlined in our Remember the lesson note from last year - Maersk''s guidance track record is not very good. In Feb-2021 APM guided for USD8.5-10.5bn EBITDA before delivering USD24bn, while the USD24bn guide from Feb-2022 compares with BNPPE USD38bn. We do not claim the latter was unrealistically low in hindsight - we said so at the time; see Spot rates to turn negative?. Our analysis suggests substantial FCF in 2023,- even after adjusting for lower rates As outlined in today''s report FREIGHT RATE FRENZY: Moment of Truth (part 2), our analysis suggests contract rates YTD have been agreed at levels significantly above spot. With FY23 revenues set to be helped by contracts agreed at elevated levels last year extending into Q1/Q2, and revenue recognition lagged by c.30 days, average unit revenue appears likely to remain well up on pre-Covid levels - see Figures 1-4. With our forecasts suggesting FY23 EBITDA of USD14bn (down 26% from USD19bn...
The announcement of the discontinuation of the 2M alliance (MSC, Maersk) on January 25 was a major event in the container shipping market which has long been organized around three alliances. It is negative news in our view. Shipping alliances enable capacity discipline, a better utilisation rate by pooling the fleet of larger vessels and cost optimization of the network. There are now unanswered questions as to the development of the market in the future.
With US/Europe imports -17% in Q4 it may be tempting to presume a consumer ''cliff drop''... We estimate global container volumes declined by -9% YoY in Q4, with North American/European imports (the volumes that matter most for our stocks) down by an even more dismal -17%. Relative to Q4 2019, the corresponding deltas were much less severe, at -2% for both, but with investors fearful of a consumer demand ''cliff drop'' going into 2023, these numbers are unlikely to calm nerves. Fortunately, our analysis suggests the volume outlook is likely to prove rather more benign. ...but the reality is more benign, with tough comps/de-stocking the key drivers In a sector where few things remain constant, there is but one beacon of predictability - the timing of Christmas, ahead of which retailers stock up during July to September. This is referred to as ''peak season'' for North American/European container imports, followed by a seasonal slack during October/November. Due to capacity constraints caused by supply chain disruptions this seasonal slack did not happen during 2021, causing North American/European imports to flat-line throughout the year and setting up an extremely tough comp for Q4 2022 - see Figures 7 and 8. With this tough comp combining with inventory de-stocking throughout North America/Europe which was in full swing during Q4, the large YoY declines are perhaps less scary than headline numbers suggest. Following a weak Q1, we expect normalisation as 2023 progresses, with 10% growth in H2 With our analysis suggesting the bulk of inventory de-stocking will have played out by Q2 (see pp.47-48 of our 30-Nov Global Freight Forecaster report Freight with destiny), we expect a weak Q1 but a return to normalisation thereafter. Our modelling of North American/European imports suggests YoY 2023 volumes of -3% and +3% respectively, equating to +11% and -2% vs. 2019 and +5% in total. For H2 2023 specifically our forecasts suggest YoY growth of 10%;...
Memories from the 1980s: ''It doesn''t get to look any better than that''. May-1986. Miramar, USA: With Goose lost and Maverick''s confidence low, a memorable line is born ''It''s not good. It doesn''t look good''. Nov-2022. Marylebone, UK: The author is wondering what he can write on APM that he hasn''t written before, and recalls Sundown''s equally memorable response; ''What do you mean it doesn''t look good? It doesn''t get to look any better than that''. And therein lies the relevance of a 1980s classic for APM investors. Quite simply, when it comes to entry points, we can only stress that it doesn''t get to look any better than this. In conjunction with today''s report Global Freight Forecaster, we reiterate our Outperform rating and for those nervous about pulling the trigger, highlight three reasons to do so. Reason #1: APM trades near trough P/BV and (even more importantly) just 0.4x EV/IC Maersk is trading close to its trough P/BV (see Figure 1) for a reason - investors are worried. When it traded at this level previously, investors were worried then too. But history has always shown worst-case fears to be overdone. With APM''s balance sheet the strongest ever and the stock trading on just 0.37x EV/IC, below previous troughs by some distance (Figure 2), this time is unlikely to be any different. Certainly, fears that Maersk could burn USD10-20bn appear unlikely to play out. Reason #2: adjusted for dividends, EV compression is likely to continue Excluding working capital movements, we estimate Maersk will produce USD32bn FCF this year. In this context, fears that FCF could turn negative in 2023 appear highly improbable. Indeed with a potential USD5bn of working capital inflow, FCF appears set to remain firmly positive, with Maersk''s like-for-like EV (i.e. adjusted for cash returns) likely to contract further. Reason #3: Spot rate weakness is increasingly in the rear-view mirror We dislike to broke Maersk on directional spot rate trends when there...
The death of demand or a great destocking drive? That''s the key imponderable for freight/logistics. So let''s ponder. In this data bible of global trends, we aim to assess everything you need to know about why freight demand has been so strong, and what lies in store from here. We expect demand to remain resilient overall, albeit with destocking headwinds until Q2 of next year. Importantly, with supply chain disruptions likely to normalise by end-2023 we expect pricing power will normalise too, with significant implications across the sector. Alongside this industry tome, we publish separate notes on Freight Forwarding and Parcel and Express, identifying winners and losers ahead of what could be a turbulent year. Top picks are DP-DHL, Maersk, CHRW and IDS (Royal Mail), with UPS and InPost least preferred.
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At its ESG Day, AP Moller-Maersk gave a detailed update on its commitments for 2030 in order to achieve net zero CO2 emissions in 2040. In Ocean, which accounts for a large portion of CO2 emissions, the group chooses green methanol as the first green fuel and has been very active in the signing of partnerships to secure supplies. The group anticipates incremental operating costs of $300-400m by 2025 and $1.5bn incremental capex in 2022-25 which is already included in capex guidance.
Reiterating Outperform; EV compression thesis more compelling by the quarter Three weeks ago we suggested Maersk may actually be more profitable in Q3 rather than less, see AP MOLLER-MAERSK: Profitability to rise in Q3?. Yesterday''s results confirmed this, with Q3 EBITDA of USD10.9bn +6% vs. USD10.3bn in Q2 (and +11% vs. consensus USD9.8bn). Q3 FCF generation of USD7.8bn set a new quarterly record despite a working capital outflow of USD1.2bn. One may have thought the Street would be happy. Instead it focused on downward revisions to volume guidance, with the stock -6% on the day. With our EV compression thesis increasingly visible by the quarter, we view any weakness as a good entry point, with our Outperform rating reiterated. With guidance looking very achievable, another positive trading update appears possible Unsurprisingly given the weakening macro, Maersk left FY22 guidance unchanged, at USD37bn EBITDA and USD24bn FCF. These numbers imply USD6.7bn and USD3.4bn for Q4 respectively, in both cases representing significant reductions versus Q3 (for which the figures were USD10.9bn and USD7.8bn respectively). FCF guidance appears particularly conservative, partly because Q4 working capital is likely to be positive following an outflow of USD-1.2bn in Q3. A positive trading update ahead of the FY results next February appears distinctly possible. Valuation: EV compression becoming clearer with better disclosure As requested in our 5-Oct report AP MOLLER-MAERSK: If we were running Maersk..., APM provided improved disclosure on cash, enabling investors to split term deposits from the receivables line when calculating cash equivalents. Bloomberg adjusted its EV calculations by the end of the day. By year-end we estimate core EV will be just USD21bn at the current share price, equal to 0.4x EV/IC - significantly lower than any of the five previous troughs dating back to March-2009, which saw an average of 0.74x. While our 2023 estimates are...
Q3 22 was a record quarter and the second consecutive quarter with an EBITDA above $10.0bn. EBITDA reached $10,862m (+56%) corresponding to 47.7% of revenue (+5.9pts). Ocean was the main contributor with an EBITDA of $9,924m thanks to the strong increase in average freight rates (+42% yoy). The increase in freight rates started to stabilize sequentially in Q3 22. The 2022 guidance was unchanged and a decrease in earnings in Ocean is anticipated in the coming quarters.
OOCL saw Q3 unit revenue flat versus Q2, providing positive readthrough for Maersk The Hong Kong-based shipping line OOCL released its Q3 operational statistics on Friday, revealing average revenue per container almost identical to that seen in Q2 - see Figure 1. Given OOCL has; (i) greater exposure to the Transpacific than Maersk (the route on which rates sequentially declined most during Q3 - see Figure 4), and (ii) we believe greater exposure to spot cargo in general, this bodes well from a Maersk perspective. Indeed given OOCL was able to keep its unit revenue stable, it would be surprising if Maersk''s Q3 unit revenue does not continue to rise. The bigger question mark concerns volumes, but we would expect Maersk to be resilient OOCL''s volume declined by -5% in Q3 versus Q2, with revenue declining by the same amount given the stable unit revenue - see Figure 2. This was better than the corresponding -10% reported by the Taiwanese lines, albeit this was likely impacted by September tensions in the Taiwan Strait, which saw revenues down by -20% versus the Jul/Aug average; a delta that cannot be explained by seasonality - see Figure 3. Average monthly revenue during Jul/Aug was down by -3% versus Q2, with volume likely similar given OOCL''s unit revenue stability. For various reasons including superior schedule reliability, we suspect Maersk''s sequential volume development during Q3 will be better than that of its Asian peers, potentially down only marginally. APM profitability could rise in Q3 vs. Q2, contrary to the consensus expectation If Maersk''s Ocean unit revenue is indeed up in Q3 than Q2, it is entirely possible that Ocean revenue will be up too. With unit costs likely to be lower in Q3 than Q2, primarily due to reduced fuel costs, it is possible that Ocean division profitability will rise - as therefore would Group profitability. This would be a positive surprise versus consensus, which expects EBITDA to decline from USD10.3bn in Q2...
We believe simple balance sheet measures could crystallise significant upside In this report, we outline what we would do if we were running Maersk. Our plan is simple. We would formalise existing internal balance sheet thinking as stated policies, and then re-set the balance sheet by returning excess cash to shareholders, in part via tender offer. We believe our plan would not only improve investor perceptions, but also help to crystallise significant valuation upside. Operationally, we have no major issues with how Maersk is being run... While it hasn''t always been plain sailing since CEO Soren Skou took charge in June 2016, we have no major concerns operationally. The integrator strategy makes sense and has seen no execution issues to-date, while vessel orders have been restrained and existing capacity well managed. ...but the balance sheet is an entirely different matter, with major room for improvement Maersk''s balance sheet is out of control. In a good way, but out of control nonetheless. By end-2022 we estimate it will include USD27bn of cash, USD21bn more than needed. Even after deducting a potential USD13bn outflow for the dividend next March, we calculate excess cash of USD8bn relative to what we consider an efficient capital structure. Our plan is simple; (i) formalise existing balance sheet thinking; (ii) return excess cash While APM does not have a stated balance sheet policy, its internal thinking is to maintain USD10bn of liquidity, which essentially means USDc.5bn of cash. This is a sound approach which should become a formal policy. So long as interest-bearing liabilities are kept at a sensible level, which we consider to be USD 15bn, Maersk should commit to return excess cash to shareholders. Given a 40% payout ratio and USD3bn p.a. buybacks will be insufficient to achieve this in a timely manner, we would undertake tender offers. These measures would provide three benefits; (1) confirm APM plans to maintain an efficient...
FedEx''s comments on accelerating weakness were certainly alarming, but were they correct? With FedEx attributing last week''s profit warning to ''global volume softness that accelerated in the final weeks of the quarter'' (i.e. August), the subsequent sell-off across the Logistics/Freight Transport sector was inevitable. But after cross-checking this commentary with both industry data and competitors, we can find no evidence of any material volume deterioration in recent weeks. Indeed even for FedEx''s main hub, data to August shows no discernible change in trend. FedEx volumes at Memphis did not see any meaningful deterioration during July/August... Our analysis shows that FedEx volumes handled at its Memphis hub did not change materially during July/August, either for US Domestic (see Figures 1-2) or International (Figures 3-4). This was true both in absolute terms and relative to 2018-19, which provides a cleaner comp than 2020-2021. We estimate that c.65% of FedEx Express'' US Domestic volume is routed through Memphis together with c.15-20% of its International Priority volume. These are large enough shares that if FedEx''s overall volumes had seen a sharp contraction, we would expect this to show up in the data. But this is simply not the case. ...while Deutsche Post DHL''s volume trends have shown no change, even into September Both DHL and DSV confirmed an easing of demand since March, but we understand both companies have seen no discernible change in volume trends during the past couple of months. Indeed for DHL specifically, we believe volume trends remained unchanged even into the first week of September. FedEx''s December 2018 profit warning was proven incorrect. Maybe it''s wrong again? Last week''s update bore a striking resemblance to FedEx''s warning from 18-Dec-2018, when its comment that ''Global trade has slowed in recent months'' also caused Street panic. At the time none of our other Logistics companies noted such a change, as outlined...
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The congestion in the global supply chain continued in Q2 22 and contributed to maintained high freight rates. The Group EBITDA doubled to $10.3bn and Ocean was a major contributor with EBITDA of $9.6bn, 55% of revenue (+15.4pts yoy). Average freight rates surged by +64%, more than offsetting lower volume (-7.4%) and higher operating costs. In H1 22, the Group’s ROIC was exceptional (62.5%). The upgraded 2022 EBITDA guidance ($37bn vs $30bn previously) includes a gradual normalization in Q4 22.
In Q3 21, group revenue and EBITDA surged by respectively +68% and +202% due to the continuing exceptional market conditions in the container shipping market. Ocean was largely the main contributor, driven by high freight rates (+87% to $3,561/FFE on average). In Logistics & Services, strong revenue growth (+33% organically) was driven by volume, essentially thanks to the commercial synergies and contract wins. 2021 guidance is unchanged and includes an EBITDA of $22-23bn.
The group released an extraordinary Q1 21 as pre-announced on 27 April 2021. Revenue increased by 30% and EBITDA jumped to $4,039m (+166%). Ocean was a substantial contributor with revenue growth of 31% and EBITDA of $3,444m (+193%). Strong demand led to extraordinary capacity constraints and bottlenecks in equipment and congestion in ports which had a positive impact of €2.2bn in EBITDA. The raising of 2021 guidance is based on continuing exceptional market conditions and long-term contract achievements in Ocean.
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