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03 Nov 2022
EV compression increasingly visible
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EV compression increasingly visible
- Published:
03 Nov 2022 -
Author:
Joynson Robert RJ | Watkins Hugo HW -
Pages:
8
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...