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COVID: Maersk Is Betting On A “U-Shaped Recovery”

Bloomberg
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August 19, 2020

Photo: by miquelito / Shutterstock.com

by Christian Wienberg (Bloomberg) –The world’s largest container line may generate $1.5 billion more in operating profit this year than previously expected, as its business proves resilient to the Covid-19 crisis.
A.P. Moller-Maersk A/S provided guidance for the first time since March, and painted a brighter picture of the future than investors and analysts had anticipated. Soren Skou, Maersk’s chief executive, said he now expects container volumes to be back at 2019 levels by the beginning of next year.

In an interview with Bloomberg TV’s Anna Edwards, Skou said Maersk is betting on a “U-shaped recovery.”

Shares in the company soared as much as 7.4% when trading started in Copenhagen on Wednesday. Maersk managed to cut operating costs by 16% in the second quarter which, together with a 4.5% rise in freight rates, more than offset a 16% drop in volumes.

“Going into the crisis, not knowing what would happen, we accelerated all of the cost-saving initiatives we had in the drawer, so it was across the board,” Skou said.

Read: Maersk Forecasts A Return To Pre-COVID Container Demand In 2021

Ebitda in 2020 will be between $6 billion and $7 billion, Maersk said. Before suspending its guidance, Maersk had expected profit by that measure to reach around $5.5 billion. Analysts surveyed by Bloomberg had predicted $5.83 billion, on average.

In Wednesday’s report, Skou said that Maersk was “never closed for business” at any time during the Covid-19 crisis.

Maritime Industry Signals

Maersk’s results suggest that the container shipping industry may be entering a positive cycle, Espen Landmark Fjermestad, an analyst at Fearnleys, said in a note.

“The Liners are now enjoying a higher freight environment thanks to the significant consolidation the industry has seen over the last five years,” he said. “In addition, container volumes are now rebounding with potentially an inventory replenish story on top.”

Frode Morkedal, a managing director at Clarksons Platou in Oslo, said “freight rates are performing better than expected in 3Q despite liner companies adding back ship capacity to trade lanes, an indication of a stronger demand recovery than expected.”

“We continue to favor Maersk as a recovery bet and we remain constructive to the container-ship market outlook, and see earnings upgrades likely to further support the stock price,” Morkedal wrote in a client note.

COVID-19 Lockdown Scenarios

But Skou also warned that the company’s current outlook doesn’t include the possibility of a “material” second phase of lockdowns. He also said that “significant uncertainties remain on demand growth due to Covid-19, global supply growth and bunker prices.”

“Global demand growth for containers is still expected to contract in 2020 due to Covid-19 and for Q3 2020 volumes are expected to progressively recover with a current expectation of a mid-single digit contraction,” Maersk said on Wednesday.

Maersk, which transports about 15% of the world’s seaborne freight, reported a second-quarter Ebitda of $1.7 billion, close to the highest analyst estimate. The company had said back on June 17 that the second quarter was developing better than first feared and that Ebitda was expected to be “slightly above” $1.5 billion.

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