Alert in the near term

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 buyb

No sign of a volume rebound in H2 23

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.

No surprise about the drop in earnings

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.

Back to normalised market conditions

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.

2M alliance discontinued: major event in container shipping

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.

Clear environmental roadmap

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.

Record Q3 22 and start of the normalization in Ocean

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.

Gradual normalization awaited in Q4 22

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.

80% of contracts signed with high rates in 2022

Q1 22 EBITDA reached $9.1bn (+125%) o/w $8.2bn in Ocean. The average freight rate surged by +71% (+14% sequentially). It absorbed lower volume (-6.7%) and higher operating costs (+21%). The increase to the 2022 guidance includes the strong Q1 22, higher freight rates in Q2 22 and a market normalisation in early H2 22. There is no risk on the results in 2022 as 80% of the contracts signed in Ocean benefit from average freight rates c.40% above the 2021 level.

2022 guidance upgraded

This is becoming something of a habit. The Group has made a pre-announcement of its quarterly figures to alert on a higher-than-expected Q1 22 result and an upgrade in the 2022 EBITDA guidance to c.$30bn (vs c.$24bn previously). The situation of the container shipping market remains exceptional with very high freight rates and the picture should be very positive in Q2 22 (vs +59% in Q2 21). Note that there is a deceleration sequentially (+71% in Q1 22 vs +83% in Q4 21, +87% in Q3 21).

High EBITDA guidance for 2022

Q4 21 was very strong with underlying EBITDA of c.$8.0bn (+195%). Ocean was by far the main contributor with EBITDA of $7.3bn. The 83% increase in average freight rates had a huge impact on Ocean EBITDA (+$6.0bn). Considering these exceptional earnings, APMM ROCE surged to 45.3% in 2021 far above the minimum target of 7.5%/year. There is an exceptional return to shareholders ($7.1bn in dividend in addition to share buy-backs). 2022 guidance includes EBITDA of $24bn, like in 2021.

Acquisition in the fast-growing Asian logistics market

AP Moller-Maersk has signed an agreement to acquire 100% of the shares of the Hong Kong based company LF Logistics and will integrate the ICL business with revenue of $1.0bn and an EBITDA margin of c.25% of revenue estimated in 2021. It is an all-cash deal based on an enterprise value of $3.6bn which corresponds to an EV/21 EBITDA multiple of 14.4x before synergies. It is a positive step in the fast-growing logistics market in Asia Pacific.

Q3 21 in line with expectation, perspective of a strong Q1 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.

An exceptional Q2 21 and Q3 21 expected above Q2 21's

In Q2 21, revenue surged by 58%, EBITDA jumped to $5,064m (+198%), free cash flow increased to $3,230m (+207%). The Ocean division (87% of EBITDA) continued to benefit from exceptional market conditions such as strong demand, bottlenecks in the supply chain, equipment shortages. Volume recovered (+15% yoy). Average freight rates have peaked (+59% to $3,038/FFE). 2021 is an incredible year with EBITDA expected to reach $18.0-19.5bn (vs $8.3bn in 2020), free cash flow of at least $11.5bn (vs $4.6b

SP Angel Morning View: Base metals rise as gold pulls back ahead of the US payrolls

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Morning Note – 4 April 2024