A.P. Moller-Maersk is the largest group of companies in Denmark. It’s engaged in container and tanker shipping, operation of container terminals, shipyards and manufacturing, oil exploration and offshore activities, and the retail trade. Maersk is the global leader in container shipping and accounts for approximately 15% of the container tonnage movements worldwide (B Times).
The company’s revenue by business segment is as illustrated in the chart below; Click to enlarge
As shown in the chart, the company has many businesses though container shipping is its biggest revenue generating segment. The ideal way to value a company with diverse operations like A.P. Moller – Maersk is to apply a sum of the parts valuation. However, the scope of this post is the valuation of container shipping companies and we shall examine the specific measures related to that segment as they apply to Maersk. Most companies engaged in container shipping are also involved in other shipping related businesses. It’s important that we know to value each segment separately because the value and health of each segment has to be established in ascertaining the value of the group.
“Container freight rates for the Asia-Europe trade lanes have returned to 2007 peak levels,” Dutch bank ING says in a note, quoting the South China Morning Post newspaper. Indeed, early 2010 has seen some robust activity in the trade. However, the Chief Executive of Maersk Nils Smedegaard Andersen stated to Reuters that he does not expect a rapid recovery in 2010. The recent activity is attributed to restocking and the momentum is not expected to continue. Drewery Shipping Consultants forecasts an increase of 2.4% in trade and capacity expansion of 7.9% in 2010.
Currently the Trans Pacific routes are underpriced and a price increase is expected in 2010. Therefore, Maersk with its healthy exposure to this lane is likely to benefit. In fact, it has the best global reach of all container shipping companies. Maersk’s container movements by trade lane are as shown in the following chart.
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Source: 2008 Annual Report
Given low growth in demand and relatively higher capacity expansion in the industry, the excess capacity situation in the industry is likely to continue. Current estimates from AXS-Alphaliner shows around 10.4% of the current fleet is idle. Maersk claims its capacity expansion is in line with economic growth. Given its size and reach, the company’s order book is lighter than most competitors. Slow steaming is also being utilized to ease the situation of excess capacity.
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At a little below 8 years, Maersk’s average fleet age is also attractive compared to its competitors.
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Source: Source: AXS-Alphaliner/Maersk
Maersk is trading at a Price to Book Value of 0.79. The industry average is 0.84 (Reuters). This confirms that it is not over valued. In fact, given the company’s global reach, strong fundamentals and leading position in container shipping it should be trading at a premium to the average.
The Net Asset Value per share is the ideal measure to ascertain the value of a container shipping company. However, in the absence of that information we could use the Price to Book Value multiple.
Disclosure: No Positions