Investeringskommentar, Michael Field, CFA, Eq. Analyst, 22 September 2016
On Sept. 22, following a strategic review initiated by new CEO Soren Skou, no-moat Maersk announced the restructuring of the group into two separate divisions: transport and logistics, and energy. We expect to make only minor adjustments to our fair value estimate to reflect the additional cost benefits from the new structure, but believe the shares are currently fairly valued based on our DKK 9100 fair value estimate.
The move to restructure the business is a welcome one in our view, as we believe the diversification benefits from the combination of businesses such as Maersk line (Maersk’s flagship container shipping business) with Maersk oil have proven to be less than lucrative over the last number of years, during which time we have seen low oil prices and benign shipping activity negatively affect group profitability.
Management have outlined revenue and cost benefits of roughly $600 million over the next three years as a result of this restructuring. We believe this is entirely possible, given in particular the potential for consolidation of back-office systems and functions, as the businesses within the transport and logistics division operate more closely together under the new structure.
From a valuation perspective, given the predominance of transport analysts covering the stock, the prospect of a restructuring of this nature could also go some way to achieving a better understanding of the energy division’s value by the market.
Finally, it is worth noting that this breakup will not happen overnight. The two divisions will remain part of the Maersk Group, with a view to splitting off the energy division some time over the next two years, with the method of this disposal also yet undecided. Given the prevailing weak oil price and the distinct possibility of achieving rock-bottom valuations on these assets, our preference would be for a spin-off, which would allow shareholders the opportunity to take a long-term view on these assets.
Bulls Say
- Maersk Line remains one of the most profitable ocean carriers; since 2011, the firm has boasted an EBIT margin that is on average 500 basis points higher than those of its peers.
- Large cost-cutting measures, including significant headcount reduction, should help create a leaner business model going forward.
- Significant divestments of noncore assets, such as Danske Bank and Supermarked, have led to a more focused entity.
Bears Say
- Excess capacity in global container shipping continues to put pressure on shipping rates.
- Lower crude oil prices will likely remain a significant headwind for Maersk Oil, while also providing a problem for other divisions, including Maersk drilling.
- Maersk Line operates in a highly cyclical, maturing business marked by capital intensity and intense price competition.
