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Director’s Cut
Idle containers lead double upgrade
Robert Joynson initiated coverage on A.P. Moller Maersk (MAERSKB DC)
with an Underperform in April this year. Since then, the container shipping
industry supply-demand balance has continued to weaken, forcing freight rates
further down.
But Robert thinks enough is enough, and has done a double upgrade on Maersk,
lifting his rating from Underperform to Outperform. In his view, the anticipated
weakness in container freight rates is already well understood by the market and
priced in. His analysis also suggests freight rates could stabilise sooner than
many in the market expect, with the possibility that industry EBITDA losses will
stimulate a significant increase in idled capacity before year end.
While the container division remains the key swing factor for group earnings, it
also accounts for less than 20% of his overall valuation. Even after using
conservative valuations for Maersk’s other divisions, the current share price
suggests the market is ascribing zero value to the container division. Coupled
with the potential near-term catalyst of freight rate stabilisation, Robert believes
now is a good time to start accumulating. Looking forward over the next 12
months, he forecasts a TSR in excess of 25%
On another topic, our European consumer team has reduced their expectations for
real consumption growth by 0.9%. In this environment, they expect companies that
have access to structural growth and strong balance sheets and cash flows to
outperform. In food retail, Sreedhar Mahamkali likes Tesco (TSCO LN), and
has downgraded Carrefour (CA FP) to Underperform. In UK general retail,
Rebecca Lay likes Marks and Spencer (MKS LN), but has concerns over the
outlook for Home Retail (HOME LN).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Director’s Cut
Idle containers lead double upgrade
Robert Joynson initiated coverage on A.P. Moller Maersk (MAERSKB DC)
with an Underperform in April this year. Since then, the container shipping
industry supply-demand balance has continued to weaken, forcing freight rates
further down.
But Robert thinks enough is enough, and has done a double upgrade on Maersk,
lifting his rating from Underperform to Outperform. In his view, the anticipated
weakness in container freight rates is already well understood by the market and
priced in. His analysis also suggests freight rates could stabilise sooner than
many in the market expect, with the possibility that industry EBITDA losses will
stimulate a significant increase in idled capacity before year end.
While the container division remains the key swing factor for group earnings, it
also accounts for less than 20% of his overall valuation. Even after using
conservative valuations for Maersk’s other divisions, the current share price
suggests the market is ascribing zero value to the container division. Coupled
with the potential near-term catalyst of freight rate stabilisation, Robert believes
now is a good time to start accumulating. Looking forward over the next 12
months, he forecasts a TSR in excess of 25%
On another topic, our European consumer team has reduced their expectations for
real consumption growth by 0.9%. In this environment, they expect companies that
have access to structural growth and strong balance sheets and cash flows to
outperform. In food retail, Sreedhar Mahamkali likes Tesco (TSCO LN), and
has downgraded Carrefour (CA FP) to Underperform. In UK general retail,
Rebecca Lay likes Marks and Spencer (MKS LN), but has concerns over the
outlook for Home Retail (HOME LN).
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