Analysts: Maersk Line could be facing 'catastrophic' report


CONTAINER: Several analysts expect a deficit for Maersk Line, when the Maersk Group releases its next financial report in August. Jyske Bank believes that a downgrade lies ahead.


Low prices and too many vessels on the water are a headache for the carrier Maersk Line, which likely faces a deficit when Maersk presents its interim report for the second quarter in August. Friday, the three Japanese carriers: Mitsui OSK, Nippon Yusen and Kawasaki Kisen downgraded their expectations for 2016, and earlier during the summer, other competitors similarly emerged with weak results.

"We are not receiving particularly positive signals from the Japanese competitors, where the rate development is not looking particularly uplifting, and there could well be a negative surprise at Maersk Line, where a minus probably awaits," says Morten Imsgard, share analyst in Sydbank, to Ritzau Finans.

"The big wild card is, how much can Maersk Line cut down on costs, which the carrier showed itself capable of in the first quarter where it was just able to stay afloat. But I doubt that we will see a plus now, because the rates have looked weak," says Imsgard, who has a buy recommendation on Maersk shares.

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He foresees an operating deficit of USD 122 million for Maersk Line in the second quarter, which will correspond to a decline from earnings of USD 500 million the year prior. Nor are there high expectations for Maersk Line at Jyske Bank, where according to senior analyst Frans Høyer, the carrier will likely be compelled to downgrade expectations for 2016 in light of the second quarter report in August. Currently, the prognosis is a "significantly lower result" than in 2015, where the result landed at USD 1.3 billion."We have seen weak signals from several of our competitors with lower rates and weak demand. Maersk Line can perhaps hope for a little bit of a boost from the bunker price, but I doubt that it will be enough to be able to secure a zero result," says Højer.

"If Maersk Line can see that there will be a zero result or a negative result, then the company will need to downgrade its expectations, because in my eyes, a "significantly lower result" encompasses neither a zero nor a deficit," says Høyer, who has a SELL recommendation on the shares. At Sydbank, Morten Imsgard does not agree. He predicts that it will be too early to adjust the prognosis in August, where the Fall could look better with higher prices."Although earnings in the first six months could end up a catastrophe, it's almost necessary to wait. The expectations are also based on an anticipated improvement in the second half of the year," he says.

Maersk group

How much of an improvement, is the big question. The two analysts do not agree. The latest rate figures have shown positive signs, but the good times will probably not last, says Høyer from Jyske Bank. "You must remember, that we are now going against a low season, and I doubt that the rates can hold the current levels. The imbalance in the market is bigger than ever, with larger growth in demand than supply, so it is not presently a good situation for carriers," he says.

Meanwhile, Imsgard has the opposite prediction, claiming that there are market improvements ahead because several of the economically squeezed players on the market will simply be forced to scrap ships."I believe, that it could be the carriers which take vessels out of the market later this year, because many of the smaller carriers are pressured and sailing on deficits, and if they take capacity out it will create higher prices on the market," says Morten Imsgard.

Høyer expects that Maersk Line's net result for 2016 will end up a deficit of USD 0.7 billion, which will be a significant drop from USD 1.6 billion in 2015. Meanwhile, Imsgard from Sydbank expects the opposite, with a positive result of approximately USD 1 billion at Maersk Line. Maersk Group will publish its second quarter report on August 12th.

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Source : Shippingwatch

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