Maersk Earnings: Attractive Share Price Upside Despite Ongoing Shipping Volume Weakness in 2023

For investors looking wanting good news from the no-moat shipping company Maersk MAERSK B, the Aug. 4 second-quarter results were not it. The company downgraded it’s full-year outlook for container shipping volumes to negative 3.5% on 2022 levels at the midpoint. This is downbeat, but not disastrous. At current share price levels we believe much of this negativity is already baked in and we see very attractive upside to our DKK 20,000 fair value estimate.

Volumes continue to decline for Maersk’s ocean business, its largest segment, primarily as a result of weak consumer demand and destocking by firms following the scramble for goods in the aftermath of the coronavirus pandemic. Exacerbating this situation is the increase in shipping capacity as a number of large industry peers are finally seeing new vessels being delivered, vessels which were ordered during the halcyon days of sky-high shipping rates.

However, there were some bright spots in the Aug. 4 update. The terminals business has managed to keep volume declines to 6.5% in the quarter and returns on invested capital at more than 11%, a decent return in a tough market.

Even with the doom and gloom surrounding sea freight, we are confident the next few years won’t be as bad as investors fear, for two reasons. First, the industry is far more rational than it has been in the past. Second, Maersk is in good shape since it paid down debt significantly during the good years to the point that even with trough EBITDA guidance for 2023, its net debt/EBITDA ratio is still likely to remain at just 1 times.