Sunday 17 January 2016

Analysis of Maersk

Maersk, a Danish shipping and oil company

Company: Maersk

ISIN DK0010244425 | WKN 861929

Business: A Danish shipping and oil company. The two pillars are: Container Logistics (with container shipping, port operation and, of course, logistics and freight) the second pillar is Upstream Oil (which includes an oil and gas extraction, offshore drilling and tanker shipping of refined oil products). Around 40% of all revenue comes from the container shipping business and the overall Container Logistics generate 65% if the revenue and oil related (including the oil tankers) generate 35% of the revenue.

Active: world wide

P/E: 5.1

Comment: It was a bit annoying to collect the data due to A and B shares as well as share prices being in DKK but they are filing their reports in USD... in the end I converted all to USD which increases the chance of error.

This company was analysed due to a request posted on the Analysis Requests page.

contrarian values of P/E, P/B, ROE as well as dividend for Maersk

The P/E for Maersk is excellent with 5.1 (however 2.8 billion earnings came from discontinued operations... such as supermarket, oil tankers etc.) and the P/B is also excellent with 0.6. This gives a very clear buy signal from Graham.  The earnings to sales looks good with 11% and the ROE is ok with 12.1%. The book to debt ratio also very good with 1.6.
In the last five years they have had a yearly revenue growth rate of 0.9% which is far from being impressive. Due to this low growth we then end up with a motivated P/E of 8 to 11 which means that Maersk is today undervalued by the market.
They pay a very nice dividend of 3.7% which only corresponded to 19% of their earnings (please do not forget the 2.8 billion discontinued though!) so hopefully they should be able to keep the dividend or the time being.

Conclusion: Graham says yes and so do I. Maersk seem to have been hit twice this time. Once last year because they are involved with oil and gas and now, what is also worse, because their container shipping business is taking a hit and that is the bread and butter for Maersk. A concern of mine is also that in the last five years they have reported total earnings of around 19.65 billion USD and in the same period they have taken depreciation, amortization and impairment costs in the size of 27.86 billion USD. Would Graham have liked that? I find that figure to be pretty astonishing! Anyway the P/E, P/B, ROE and dividend are all excellent and as a contrarian that should be enough for me.

If this analysis is outdated then you can request a new one.


Fredrik von Oberhausen said...

You are welcome John-magic!

It was a bit funny that you asked for it because on the Swedish blogs there had been some comments regarding Maersk which was/is one of the companies that the, now, legendary Swedish blogger Lundaluppen owned. I would not be astonished if he still owns it... though... he did become a bit concerned when he sat down and considered how many of his companies had an direct or indirect connection to oil. So therefore I am not 100% certain that he still keeps it in his portfolio.

I find it a contrarian company today but I would bet that so are all their competitors also. Therefore the question becomes... is Maersk the best investment?

Anonymous said...

The oil shares teaches us how important it is to protect your portfolio against disasters. I'm negative -7 % this year due to oil service shares I bought in November when I thought oil price wouldn't go much lower. Still only 20 % of my portfolio is exposed to oil.

My idea about Maersk is that it is protected from extinction by its size and its shipping component that should benefit from low oil prices. But I didn't analyze this part separately yet. The dream would be to get the shipping/container business for a fair price and the oil related parts for free.

Which competitors do you know about? It's always a bit difficult to get a grip of the competitors of conglomerates.

Fredrik von Oberhausen said...

I agree that conglomerates are difficult which is also often why they are disliked by analysts and their true value is almost never accepted by the market.

What I looked at was this article here showing the 10 biggest shipping companies. The reason for that I look more at that is because that the shipping problem is the latest cause of stir by the market if I understood things correctly. If one calculate it more accurately then for the running nine months 65% of the revenue has to do with shipping in Maersk.

Hapag-Lloyd made around 600 M€ losses last year and the year before around 100 M€ losses I did not go back further.

Neptune Orient Lines have made losses for the last four years in the size of 70 to 500 M$ per year.

Evergreen is profitable. Made around 35 M$ in 2015 and 44 M$ in 2014.

I only wanted to bring in the profits and losses as a small indication of the size of the companies...

I noticed that Maersk is buying back shares also now in January... to be honest I am getting more and more tempted.

Fredrik von Oberhausen said...

Oh, I found some financial data concerning CMA CGM and the last two years they have made around 500 M$ profits so they are doing well and in December 2015 they went out to acquire Neptune Orient Lines to become stronger in Asia. Seems as if the shipping business is getting concentrated to fewer very large companies.

Matthias said...

Interesting read, I didn´t know that Maersk is mostly an oil Company.

Fredrik von Oberhausen said...

Well... that is not true. I see how what I wrote leads to that misunderstanding... I will change the text in the analysis because as I wrote here in the comment it is 35% oil related.