A weak container ship market outlook over the next two years has caused a rethink on AP Moller-Maersk by analysts at Fearnley Securities.
The investment bank said “bearish” prospects mean it is now recommending investors sell their shares in the Danish giant.
Fearnley had put a “buy” rating on the stock in November 2021 as record markets approached.
Maersk celebrated the best financial result in its history on Wednesday, with a record $29.7bn profit in 2022, but the downturn shaved more than $1bn from fourth-quarter earnings, compared with 2021.
The company has contracted 50% of 2023 volumes and its midpoint Ebit guidance of $3.5bn — 38% below consensus — should be a “fair proxy” for full-year earnings, meaning significantly reduced free cash flow, dividend potential and returns, analyst Oystein Vaagen believes.
“Current market rates signal a 28% quarter-on-quarter decline in rates for Q1. However, given a lag effect due to Maersk's contract exposure, we see earnings steadily declining throughout the year,” he added.
“With the armada of newbuildings coming, there will be more than 10% pre-demolition fleet growth [in] the coming two years.”
Increased scrapping and regulations will offset some of this, but only marginally, he believes.
Inactive capacity already stands at 1.47m teu, or 5.7% of the fleet, which is pressuring any potential rebounds in the market, before additional tonnage even hits the water, Vaagen added.
Fearnley’s target price for the stock is now DKK 12,500 ($1,800), against DKK 15,480 in Copenhagen on Thursday.
Earnings to stay low
Vaagen expects the proposed March dividend of DKK 4,300 per share to support the price in the near term, however.
“Despite hopes of a rebound and the world not sliding into a deep recession, consumers continue to be heavily impacted by high inflation, interest rates and energy costs,” he said.
“Combined with the many newbuildings scheduled to hit the water in the coming months, this will likely keep earnings low for some time.”
And with dividend yields dropping to below 5%, Fearnley Securities believes investors will look elsewhere for returns.
