Maersk Is Still Benefiting From The Chaos, But For How Long?

seekingalpha10-05

Despite recent positive financial results, I maintain a Sell rating on AMKBY due to anticipated long-term negative cash flows and dividend instability.Trade disruptions and increased costs have ...

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Moeller-Maersk A/S","start_time":0,"source_url":"https://seekingalpha.com/article/4725133-maersk-is-still-benefiting-from-the-chaos-but-for-how-long","article_id":"2473928900","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/471523047/image_471523047.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2473928900","pubTimestamp":1728106178,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Despite recent positive financial results, I maintain a Sell rating on AMKBY due to anticipated long-term negative cash flows and dividend instability.Trade disruptions and increased costs have impact","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"AMKBF":"A.P. Moeller-Maersk A/S","BK4021":"海运","AMKAF":"A.P. Moeller-Maersk A/S","AMKBY":"A.P. Moeller-Maersk A/S"},"translate_title":"马士基仍然从混乱中受益，但能持续多久？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMKAF":0.9,"AMKBF":0.9,"AMKBY":0.9},"content_text":"Despite recent positive financial results, I maintain a Sell rating on AMKBY due to anticipated long-term negative cash flows and dividend instability.Trade disruptions and increased costs have impacted AMKBY's EBIT, with a significant drop from $1.6 billion in 2023 to $963 million in Q2 2024.Oversupply of tonnage and potential normalization of trade routes are expected to push freight rates down, negatively affecting AMKBY's financial performance.   Jan-Otto Investment Thesis On the 26th of April, we continued our line of Sell calls on A.P. Møller - Mærsk A/S (OTCPK:AMKBF)(OTCPK:AMKBY) The bearish camp is a lonely place to be in, as we are the only analysts who have stuck our neck out in this way. Over the last twelve months, the other 5 analysts have either a Buy or a Hold on this stock. Disruption in trade is causing longer sea voyages and port delays. Last week, we were going to receive a container here in Singapore, and we experienced delays in delivery as ships are waiting to dock. It will take some time before trade normalizes. But it will, and once it does, we believe our thesis still stands. The risks of a soft landing in the economy coupled with a high influx of capacity, and potentially more tariffs, will lead to lower freight rates. Let us revisit AMKBY’s latest financial results. Latest Financial Results So far, things are not too bad. The consolidated revenue in Q2 of 2024 surprised us on the upside coming in at $12.8 billion, which was down just 1.5% Y-o-Y. However, the EBIT paints a more gloomy picture, as it came in at $963 million instead of $1.6 billion in 2023. That is a reduction of 67%. Much of this can be explained by the additional cost of charter hire and bunker fuels from re-routing vessels away from the Red Sea, passing the Cape of Good Hope. Some years ago, the management wisely decided to pivot their business slightly away from being an ocean liner company to becoming a door-to-door logistic provider, including controlling assets such as port terminals and warehousing. Freight for ocean transportation is highly volatile. The others are less unpredictable. This last quarter also delivered positive results from their logistic services and terminals. The Q2 EBIT for logistics improved from $115 million in 2023 to $126 million this year. A similar trend took place in terminals with an improvement from $269 million to $353 million. Their FCF was negative $1.6 billion in Q2 of 2023, but fortunately for AMKBY swung to a positive $397 million in Q2 of this year. The underlying ROIC on a TTM basis was only 1.5% in Q2 and on a TTM basis 2%. Their target is above 7.5%. On a more positive note, AMKBY does have a solid balance sheet. Their net interest-bearing debt including lease liabilities amounted to a cash position of $3.6 billion. If we exclude their lease liabilities, this net cash position goes to USD 14.2 billion. A.P. Møller - Mærsk A/S dividend policy is for an annual payout ratio of 30-50% of underlying net result, adjusted for gains, impairments, and restructurings. From their Q2 interim results report, we see that they paid out DKK 515 per share. More importantly, if you are relying on regular dividend payments over a long period, this is not the place to be invested.   AMKBY dividend history (SA) SA has a forward dividend yield of 4.56%. Given the lack of stability in earnings and dividends, we think there is a high degree of uncertainty around this projection. No share buyback has taken place this year. Market condition Our earlier bearish view on AMKBY and their peers was grounded in an oversupply of tonnage hitting the water this year and the next year. Under “normal” circumstances, it would have a large impact. Due to unrest in the Red Sea, and problems elsewhere, like the low water levels in the Panama Canal, this concern of ours did not become a problem for owners of container vessels.   Harpex 20 Sep 2024 (Harper Peterson & Co) As can be seen from the latest Harpex index, owners of container vessels are enjoying good earnings for their vessels. These rates are based on actual fixtures for 6 to 12 months time charters and Harper Petersen’s estimates. However, when we look at spot rates that liner companies, like AMKBY and others, can achieve, the Shanghai Containerized Freight Index tells a different story.   Shanghai Containerized Freight Index (Shanghai Shipping Exchange) Risk to thesis The risk with all stances is that it may take a longer time to materialize than what you had envisioned. Fundamentals, with too much capacity coming into the market, remain. All wars, like the one we see taking place in the Middle East, do eventually end. Once, the route through the Suez Canal returns to normal, the supply/demand dynamics should push freight rates down. We could see negative cash flows from AMKBY on a multi-year basis. The labor strike from port workers in the U.S. East Coast and Gulf cannot last too long. There is too much economic fallout at stake. When the dust settles, we believe that AMKBY will most likely deliver negative cash flow over a prolonged period. This will lead to a disappearance of dividends, like we have seen before, and a lower share price. Conclusion To follow up on the risk of the thesis, we do not know when it is going to happen. However, we just do not want to try to be the last man scrambling for a place in the lifeboat when it does materialize. As such, and since we are not short-term traders trying to squeeze all the juice out of the lemon, we would still sell AMKBY, while the business is good.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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