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13 Apr 2023
Let''s cut the scrap
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Let''s cut the scrap
- Published:
13 Apr 2023 -
Author:
Joynson Robert RJ | Watkins Hugo HW -
Pages:
11
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,...