Moeller Maersk AMKBYupdate Aug. 04th, 2023
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`s second biggest shipping company`s after MSC with revenues of 80bn $/yr, FCF 27 bn$, capex 4 bn$ in 2022. Maersk moves about 18% of all containers world-wide and is considered a barometer of the global trade. Moeller Maersk gained a record profitability after the corona rampage of the politicians and a blockage of the Suez Canal. 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.
AMKBY used the period of record profits to change its financial situation to a net cash position of 7bn$ and did significant buybacks. It is as a bet that the freight rates remain in a range that provide AMKBY healthy profits.
Chances & Risks
The AMKBY share costs 13280 DKK or 1950$ (Aug. 4, 2023). If the profitability remains flat it is a PE of 6. It is not expensive.
Container shipping became a bonanza in 2021. 2022 high shipping rates raised the FCF and profit to an unseen record. As of Q4/22 shipping rates came back to "normal" levels. The main question is how will freight rates proceed in 2023 and 2024. Will AMKBY remain profitable?
Due to inflation the 2023 freight rates are significantly less profitable compared to Q1/21.
Bunker fuel prices came back in Q4/2022 but are still higher than in Q1/21.
Moeller Maersk has 310 own ships plus 369 chartered ships in service (June 30.2023) . Container ships have a lifetime of 20 - 25 years. That means it require about 15 new ships/yr. to keep the actual capacity. The capex was reduced drastically in the last couple of years till 2021. Now it needs to increase the capex to renew the aging fleet.
The high profitability since 2021 made AMKBY swimming in fresh cash and this is perhaps the reason that they live their green religious believes on cost of their stakeholders. In this sense they ordered 8 new ships for 16000 containers each in Korea using methanol fuel (25).
From an economic point of view it seems likely that a couple of branded companies will sent some containers for a premium price on a "green ship". Usually such actions are paid by marketing or PR and accompanied by marketing campaigns. But it seems more than unlikely that they can regularly fill these ships with 16000 containers each on premium prices.
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 face is the fat cat syndrom. It puts 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. Mearsk stated to have spent already 1 bn$ in the last 4 years on energy efficiency (8). It is to hope that the savings exceed 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.
AMKBY tightened its ship recycling procedures that means not using the inexpensive recycling yards in Bangladesh(12). That means creating unnessecary costs.
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 $ = 6.94 DKK (Feb. 8th, 2023)
Business Segments (mio. $)
Since the freight rates came down in Q4/22 the ocean business (container sea fright) is exceeded by Terminals & Towage on EBIT margin.
The A share includes a voting right. The B shares not. That is not a big difference as the company is anyway controlled by the Maersk family.
AMKBY usually has share buy - back programs in place. A significant number of shares is bought regularly. It make sense to reduce the net cash position of 7bn$.
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
2022/03/13 Maersk is trying to sell its stake in Russian port operator due to the Ukraine war (27). On my opinion it is the worst timing to sell it now. Why not stopp activities and wait.
2020/12/24 Maersk reaches deal to buy LF Logistics for about $3.6B. With a network of more than 200 warehouses and around 10K employees across 14 Asian countries, LF Logistics provides land-based logistic services such as warehousing and trucking to over 250 global customers. (26)
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
AMKBY ordered 8 new ships for 16000 containers each in Korea using methanol fuel Aug. 25,2021 (25).
From an economic point of view it seems likely that a couple of branded companies will sent some containers for a premium price on a "green ship". Usually such actions are paid by marketing or PR and accompanied by marketing campaigns. But it seems more than unlikely that they can regularly fill these ships with 16000 containers on premium prices.
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
(26) 2021/12/24 https://seekingalpha.com/news/3782589-maersk-nears-deal-to-buy-lf-logistics-for-about-36b?messageid=2900&utm_campaign=rta-stock-news&utm_content=link-1&utm_medium=email&utm_source=seeking_alpha&utm_term=RTA+News+Smart
(25) 2021/08/25 https://seekingalpha.com/news/3733791-maersk-orders-eight-carbon-neutral-megaships-for-14b?mail_subject=amkbf-maersk-orders-eight-carbon-neutral-megaships-for-1-4b&utm_campaign=rta-stock-news&utm_content=link-3&utm_medium=email&utm_source=seeking_alpha
(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/