Investment bank Jefferies raises the price target for A.P. Møller-Maersk by DKK 500 (USD 79.51) to DKK 16,500 (USD 2,623.88), with reference to freight rates staying resilient on the heels of the Chinese New Year, writes Jefferies in a new analysis.
Jefferies expects an exceptional first quarter for Maersk, with EBITDA earnings coming to USD 4.2 billion – USD 1.5 billion more than the record achieved in the fourth quarter last year.
The finance firm, however, expects earnings to peak in the first quarter.
The full-year 2021 estimates have also been revised by Jefferies, which now expects Maersk to deliver EBITDA earnings of USD 14.47 billion against the previously estimated USD 10.55 billion.
Conversely, EBITDA earnings are expected to drop 33 percent in 2022 to USD 9.7 billion. However, Jefferies highlights that just a 5 percent change in freight rates alter Maersk’s EBITDA earnings by USD 1.3 billion.
This year’s upgrade is explained by the fact that freight rates have remained resilient on the heels of the Chinese New Year, and that they are expected to sustain their high levels into the second quarter.
The record rates are likely to drop somewhat again when container demand is expected to normalize in the third quarter of this year, once the widespread bottlenecks and capacity limitations subside.
The biggest risk to the sector, according to the finance firm, pertains to a wave of new ship orders, which have nearly doubled the orderbook to 15 percent of the existing global fleet. As such, Jefferies’ best case scenario is now a balanced market in 2023.
According to Jefferies, Maersk is one of the few liner companies that have not ordered new vessels, because the company currently prioritizes a land-based expansion of its container logistics, supported by an acquisition war chest of more than USD 20 billion – equivalent to nearly half the market value.
As such, Jefferies estimates that the Danish shipping company is undervalued compared to German competitor Hapag-Lloyd, and the investment bank therefore maintains its “buy” recommendation.
Maersk is currently being traded, according to Jefferies, at 4.9 times the estimated 2022 EBITDA earnings, while Hapag-Lloyd is being traded at 8.1 times, a 65 percent premium compared to Maersk.
On that basis, Jefferies lowers its recommendation of the German container line by two levels, from “buy” to “underperform”.
Source: Shipping Watch
