A hefty earnings upgrade for AP Moller-Maersk has been delivered by investment bank UBS. The bank has lifted its forecast earnings per share for the Danish containership giant by 7% for this year, and 18% for 2006.

 UBS argues that the group’s three key earnings drivers — the shipping cycle, oil price and US dollar — have all moved in favorable directions. It also believes Moller-Maersk’s acquisition of P&O Nedlloyd will offer earnings accretion of 6% next year. Significantly, UBS says the earnings upgrade does not include any synergy benefits or more aggressive shipping rate assumptions.
 
“Maersk did not manage to integrate the two cultures very successfully and ended up losing the majority of the Sea-Land employees. “Successfully integrating Nedlloyd’s culture into Maersk will be key in determining the success of the acquisition.”
UBS says it has seen no evidence to suggest a weakness in the container industry, and that its “thesis for a ‘stronger for longer’ cycle remains intact”, based on the structural shift of manufacturing to Asia. Against this background, Maersk has put itself years ahead of the competition in terms of size, UBS says. The Nedlloyd acquisition increases Maersk’s container fleet by 50% and leaves the group in an unrivalled position with about a 22% market share, double that of its nearest competitor. The bank comments: “The scale that it creates will allow Maersk to offer an unparalleled service able to cater for the largest global shippers that since 2002 have been outgrowing Maersk’s container capacity. “With 22% market share, there is the prospect of pricing power, although we do not factor this in at this time.”
 
The move also defends Moller-Maersk’s market share: almost 30% of the industry order book is coming into operation in 2006, while Maersk would have had to wait until 2007 for the majority of its new ships. “By purchasing Nedlloyd, Maersk has been able to protect its market share and put itself in an almost unassailable global position.” And with an under leveraged balance sheet, UBS argues that Maersk’s acquisition of Nedlloyd would have still been accretive at a much higher price than the $68 per share that it has offered.

(source:SeaNews)