Moeller Maersk AMKBYupdate March 23rd, 2021
This is not a recommendation or proposal to do anything. The data written in this article is not guarranteed. It is my private personal opinion. I`m not independing as I own a position of Moeller Maersk shares.
Moeller Maersk is the world biggest shipping company with revenues of about 40bn $/yr, EBITDA 8 bn$, capex 2.5 bn$ (21e) not sufficient to keep the capacity. Maersk moves about 18% of all containers world-wide and is considered a barometer of the global trade. Moeller Maersk regained profitability despite of the corona rampage of the politicians. It was till not long ago a conglomerate with an oil&gas business. This business was sold recently. The oil&gas drilling activities were put on the stock exchange separatly.
Potential motivation to buy Moeller Maersk shares is a moderate PE and a turnaound of the world economy and the specifically the container shipping market with higher freight rates.
Chances & Risks
MM managed to increase its profitablility despite of the corona rampage of the politicians. While freight rates increased slightly the costs for bunker fuel reduced. The capex decreased drastically. The capex is insufficient to replace the wear out of the ships and thus the capex needs to be increased or the business will decrease in the future.
Moeller Maersk has 301 own ships plus 405 chartered ships in service (31.12.2020) but no new ships. Container ships have a lifetime of 20 - 25 years. That means it would require about 15 new ships/yr. to keep the actual capacity. The capex was reduced drastically. A part of it is used for share buy backs which is not that bad. On the other hand this means a reduced business of the future.
The main risk in the longer term is that countries like China support their shipbuilding and shipping business without considering profitability.
Moeller Maersk aims to become a player in the logisitic market. There are already plenty of independent players in the market. Actually this division is not profitable! I do not think this move will become the most successful one. It would be more promising if MM would focus on an optimization of the shipping core business.
Another risk is that Moeller Maersk put the focus on green religious nonsense. Actually most articles about Moeller Maersk in Europa are about such nonsense. The target is to make MM CO2 neutral by 2050. This is not an issue as it is easy to make promises for 2050. But Mearsk stated to have spent already 1 bn$ in the last 4 years on energy efficiency (8). It is to hope that it created savings > 1 bn$. I would rather appreciate if Moeller Maersk would focus on such opportunities as establishing LNG as bunker fuel. It would help to reduce costs and fullfill ideally the "environmental requirements (sulphur emissions)". Due to its size and the the operatorship of terminals and harbour equipment it is in the ideal position to establish a new fuel.
MM tightened its ship recycling procedures that means not using the inexpensive recycling yards in Bangladesh(12). That means creating unnessecary costs while the unit is not yet profitable.
The Maersk chairman also said that executive bonuses will in future probably be linked to environmental, social and governance goals(24). It seems as the MM management could achieve more if it concentrates on the core business rather than left ideology and green nonsense.
Data & Information (16)
Exchange rate 1 $ = 6.13 DKK (Feb. 10, 2021)
CAPEX for 2021-2022 is expected to be USD 4.7 - 5.5 bn. for both years! This is still not sustainable! (2017 Capex 4050 mio. $)
Business Segments (mio. $)
The ocean business (container sea fright) is exceeding all other businesses.
Dept (2018): 8.7 bn$
Total assets (2019) 55,399 mio. $
Dividend (paid 2019): 150 DKK
A new share buy back program started. Within the next 15 month shares for max. 1.6bn$ will be bought back (23).
A. P Møller Holding A/S, Copenhagen, Denmark 40.29% 50.88%
A.P. Møller og Hustru Chastine Mc-Kinney
Møllers Familiefond, Copenhagen, Denmark 9.18% 13.31%
Den A.P. Møllerske Støttefond, Copenhagen,
Denmark 3.23% 6.07%
AMBKY is controlled by the Moeller family
2019/05/07 Maersk Supply Service has revealed that it will reduce its onshore organization. The company said it will cut its onshore costs by 30 percent “in response to the negative development in the oil and gas industry” (22)
2019/05/25 A.P. Moller-Maersk warned that rising U.S.-China trade tensions could cut container growth by as much as a third this year. "New tariffs can potentially reduce expected growth in global container volumes by up to one percentage point," from Maersk's current projection of 3% growth. Even if the U.S. and China reach a deal, "It won't be the end of the trade war," "We'll just see the U.S. turning its attention toward Europe, where there is an unresolved issue with German automakers and other things." (15)
The Maersk product tanker division increased revenues in 2018 to USD 647.0 million, the company recorded a loss before tax of USD 35.0 million and a negative free cash flow of USD 27.7 million(13).
Maersk Green Bullshit
Mearsk plans to let the Mette an 18,000 twenty-foot equivalent unit (TEU) on a return journey using up to 20 percent sustainable second-generation biofuels that will save 1,500 tons of carbon and 20 tons of sulfur in a single voyage (10). This is the food equivalent of 500 poeple one year that is burned for green religious purposes. Cost are most probably much higher as if the ship would use bunker fuel. From a non religious point of view using LNG instead of bunker fuel would be preferable. Another option could be to use a nuclear reactor as the russian SVBR100 to power the ship.
The Container Shipping Market
Actually low demand has lead to a drop of the FAK rates. MM and others hope that FAK rates will increase in for the rest of 2019
A report by BIMCO estimates that 2018 250.000 TEU will leave the market while the new built is forecasted to 1.05 mio. TEU. That means a capacity increase of 3.9%. The demand is estimated to grow 4 - 4.5% (1). It does not look like a tighter market with higher rates in the near future.
bei einer Weltflotte von rund 60.000 größeren Schiffen
LSF2020 Low Sulphur Fuel Regulation
The IMO (International Marine Shipping Organization) is going to implement a new regulation that comes in effect Jan., 01. 2020 to reduce the sulphur emission of international sea shipping. This regulation is based on the green amageddon dogma of "Acid Rain" or "Waldsterben". This green amageddon dogma was popular in the 1980ies and still generates real costs on our society.
The easiest way to handle this regulation is to use bunker fuel with < 0.1% sulphur
It is estimated that this regulation will increase the costs per TEU by 10% or 100$/TEU.
Maersk Block Chain Technology
Some reasons that Maersks logistic platform might not perform successful.."There are fantastic benefits to be had from a blockchain-enabled shipping platform: cost savings, reduced error, increased profit, etc. However, these benefits can’t outweigh the undeniable reality facing Maersk’s competitors: to join the TradeLens network is to make Maersk more profitable....Another obvious issue is that Maersk owns the intellectual property that the TradeLens platform is built on. Even assuming safeguards are put in place (to ensure that unfair advantage is not taken by Maersk or its agents), the optics are terrible." (3)
A few references
(13) 2019/04/11 http://en.portnews.ru/news/275268/
(10) 2019/03/26 https://www.benzinga.com/news/19/03/13414917/port-report-maersk-aims-to-beat-the-regulatory-clock-on-carbon-free-shipping
9. 2019/02/22 https://ml-eu.globenewswire.com/Resource/Download/3b5d6bab-974e-44bb-abaa-97fbabde11c5
8. 2018/12/11 https://www.electrive.net/2018/12/09/maersk-will-seine-schiffflotte-bis-2050-co2-neutral-machen/
7. 2018/11/19 https://www.spglobal.com/platts/en/market-insights/latest-news/shipping/111918-interview-maersk-group-favors-low-sulfur-fuels-working-on-new-bunker-adjustment-factor-exec
6. 2018/11/15 https://www.bloombergquint.com/business/an-8-billion-payout-from-maersk-raises-questions-for-creditors#gs.HaJSnZs
3. 2018/11 https://www.hellenicshippingnews.com/how-maersks-bad-business-model-is-breaking-its-blockchain/