The U.S. broker joined French counterpart Exane BNP in lauding prospects of a turn around at the Danish company. Goldman said that an uptick in shipping rates and a looming exit from Maersk’s unwanted oil business warrant a price target increase to 12,700 ($1,801) and a place for Moller Maersk on its conviction list.
Moller Maersk shares traded Friday on the Copenhagen exchange at 10,350 Danish Kroner, down 2.08% on their Thursday close, but up 13.6% over the past month.
“Maersk is in the middle of a substantial transformation: exiting oil, rationalizing capex, consolidating its industry, while driving digitization and disruption of the broader logistics value chain,” wrote Goldman analysts including Patrick Creuset and Hilary Burke in a note dated Dec. 8. “Result: significantly lower capex combined with margin restoration in shipping should enable the new ‘Maersk Transport’ to generate >$3bn in annual free cash flow (2018/19E), implying a 10% yield on the current market cap, while selling $10bn-worth of oil assets.”
Maersk had a torrid 2016 after both shipping rates and oil prices collapsed, driving revenues down from $40 billion in 2015 to an estimated $36.2 billion this year, while net profit tumbled from $4.28 billion to a likely $1 billion.
Exane BNP, last week, wrote that “the tide is turning, and for 2017 our stance is…that unless freight rates collapse Maersk Line profitability will rebound.”
The French broker gave Moller Maersk a 12-month price target of 12,300 kroner.
Rates in the shipping industry have risen following the August collapse of South Korea’s Hanjin Shipping Co., which took about 3% of the capacity out of the market.
Goldman said that first quarter 2017 spot rates are likely to be 60% higher than the first quarter of this year and could continue to rise, albeit marginally, with seaborne trade likely to grow about 4%, outpacing scheduled supply growth of 2% to 3%.
Consolidation in the industry should help shippers better manage rates. The number of shipping line operators has fallen from 20 in 2014 to 11 today and is set to fall further after Moller Maersk last week announced plans to buy the No.7 player Hamburg Sud. The deal is reported to be worth between $3 billion and $5 billion.
It may not, however, be all plain sailing for Moller Maersk, with the election of Donald Trump perhaps the most significant cloud on the horizon.
“The key downside risk to our forecast is lower-than-expected trade,” said Goldman Sachs. “Based on our economists’ estimates, we calculate that implementation of President-elect Trump’s campaign proposals could reduce containerized trade by 1% – 2%.”