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Clarksons Platou: Maersk Line result under pressure

The day after tomorrow, when the Maersk Group publishes its result for the second quarter, all eyes will be on Maersk Line as the carrier has been under pressure from the extremely low rates. Clarksons Platou points to a significantly lower operating profit from the carrier.

Photo: Maersk Line

There is a rare and tense anticipation ahead of the publication of Maersk Group's interim report on Thursday, August 13th. There has seldom been so much uncertainty about all four core segments in the conglomerate as the group is facing pressure in transport as well as in oil.

One of the extraordinary things that has occurred in the past three months - in addition to the continuously low oil price - has not least been the record-low rates on especially Maersk Line's main route Asia-Europe, which has sparked concerns about a weaker result and maybe even a downgrade of the group's full-year expectations for 2015.

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Clarksons Platou believes that this development will inevitably have hit Maersk Line and that the result at the carrier, the world's largest, must necessarily have suffered a setback.

"We expect Maersk Line to report weaker results for 2Q15 and estimate EBITDA of USD 0.8 billion, down from USD 1.2 billion in the first quarter. We have assumed volume growth to spring back into positive territory and pencil in 3.3 percent y-y in 2Q. We look for unit costs to decline 7 percent y-y but expect freight rates will be down 13 percent y-y," writes Clarksons Platou in the most recent analysis of Maersk and the expectations for the interim report, which was compiled in July.

Difficult full-year result

And Clarksons Platou does not think that Maersk Line's expectations of a USD 4 billion full-year result will hold true:

"In 1Q15, the full year net profit guidance was upgraded to "around" USD 4 billion from "slightly below", which isolated was positive as we had feared the guidance was at risk given the very weak start to 2Q in the container market. Given the substantial deterioration of freight rates since that time, there is a growing risk that the target may not be reached. 3Q volumes will be key watch factor (...) We estimate volumes need to jump back to +6 percent y-y range for the guidance to be met, given the tepid freight rate outlook," the agency writes.

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The price on the Maersk share is already hitd by the weak development in the group's core businesses with Maersk Line and APM Terminals on the one hand, and the oil businesses Drilling and Oil on the other hand. Since May, the Maersk share has moved in the wrong direction compared to other major shares listed on the Copenhagen Stock Exchange. And as ShippingWatch reported yesterday, the Maersk shareholders have not achieved the same benefits from their investment than they would have if they had placed their money in other shipping and transport stocks on the exchange.

Increase of 12.2 percent

"The terminals are suffering from the low cargo volumes, and the Drilling and Oil divisions are hit by the low oil price, which affects both the desire to invest as well as the more long-term strategies for Maersk Oil and Maersk Drilling. Maersk Line is still good at sailing on fixed contracts, and the carrier is among the best in the industry at operating its vessels," said Nykredit share analyst Ricky Rasmussen, who also warned that the low prices in the spot market will one day also reach the long-term contracts - and when this happens, Maersk Line will be exposed to the low demand for freight and the towering supply of container vessels.

At the beginning of the year, the Maersk B share stood at USD 1,630 (DKK 11,110), and the share had on August 7th climbed to USD 1,759 (DKK 11,990), a 12.2 percent increase including dividend payments related to the divestment of Danske Bank.

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