With valuation at a trough and a dividend lined up for 2022, A.P. Moeller-Maersk is “too compelling to ignore” and investors should buy the shares.
“As freight rates have declined over the summer, Maersk’s share price has fallen c40% from its August peak,” wrote analyst William Fitzalan Howard.
“While we understand concerns about the macroeconomic environment and the lack of visibility on forward earnings, we think that a doomsday scenario is now being priced in, which ignores the changes in the business over the past few years, the potential for positive surprises in the midterm and the substantial dividend to be paid to shareholders next year,” he said.
The analyst left his price target at 18,500 Danish krone, pointing to 29% upside from current levels. Maersk B class shares rose over 1% to 14,575 krone on Friday.
Global shipping companies have enjoyed healthy profits in the past two years, following pent-up demand after the pandemic, but are now facing tough times, shipping analysts Drewry reportedly told clients in their latest Container Forecaster report.
With “high-inflation sapping consumers’ spending power and spot rates in a seven-month funk, liner bosses are going to have to work much harder to keep the profits flowing,” said Drewry.
Fitzalan Howard said Maersk’s shares have a dividend yield of 34%, owing to a $11.5 billion dividend for the 2022 fiscal year that should be paid on March 23. “We think this dividend is secure considering the company’s current net-cash position and provides substantial downside protection for the shares, as well as a c90% annualized cash return on the shares from current levels,” he said.
Because Maersk’s shares have been tightly linked to freight-rate moves, they are also prone to swings that don’t reflect the shipper’s fundamentals, noted Fitzalan Howard. That’s said, he doesn’t think earnings will return to 2019 levels.
Still, Maerk’s low valuation also leaves downside protection for investors, he said.
“The dividend yield, value of the fleet and enlarged non-container assets should also all help to provide a valuation backstop to the shares. Maersk’s EV is now c30% below where it was before the pandemic; despite cyclical worries, the dramatic transformation of the business means that it looks oversold to us,” said the analyst.