Investment Analysis Dissertation (BEAM006) Investment Analysis of the Transportation and Logistics Company: A.P. Moller Maersk Panagiota Kni Student ID: 670052779 Supervisor: Dr. Stanley B. Gyoshev Page 1
Investment Analysis Dissertation (BEAM006)
Investment Analysis of the Transportation and Logistics Company:
A.P. Moller Maersk
Panagiota Kni
Student ID: 670052779
Supervisor: Dr. Stanley B. Gyoshev
Exeter, 2018
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SUMMARY
(Source: Market Screener)
Key Financials (USD)
Abstract
In this particular research study, the focus has been mainly on
analyzing the investigation of investment analysis for a logistics
company. Correspondingly, certain key objectives have been set
Recommendation: Buy
Current Price: 8,888.00DKK
Target Price: 10,908.73DKK
Guidance
A.P. Moller – Maersk expects earnings before interests, tax, depreciations and amortizations (EBITDA) in the range of USD 3.5-4.2bn and a positive underlying profit. The organic volume growth in Ocean is still expected slightly below the estimated average market growth of 2-4% for 2018. Further, guidance is maintained on gross capital expenditures (capex) around USD 3bn and a high cash conversion (cash flow from operations compared with EBITDA). The guidance continues to be subject to uncertainties due to the current risk of further restrictions on global trade and other factors impacting container freight rates, bunker prices and rate
of exchange.
Target Price
According to the table on the left, it can be observed that average target price of the company is about $1668 and the last close price of the company is about $1414 in September 2018. The highest target for the company is observed as 46% while the lowest target was -0.17%. The average target price for Maersk is about 18%. P/E ratio confirms a buy recommendation.
Key Factors affecting Maersk’s Performance
1. Fuel Price ↑
2. Salaries ↓
3. Vessels’ Price ↓
Stock Performance (Source: Bloomberg)
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2016 2017Delta
2018
DKK (in Million) % DKK (in
Million) % Estimation
Other 142,490 59.7% 122,818 60.2% -13.81% -3%
United States 39,569 16.6% 32,492 15.9% -17.89% -5%
United Kingdom 16,447 6.9% 8,293 4.1% -49.58% -15%
Qatar 13,733 5.8% - - -
China & Hong Kong
10,783 4.5% 12,800 6.3% +18.7% +25%
Denmark 9,524 4% 1,586 0.8% -83.35% -5%
Algeria 5,038 2.1% - - -
Singapore 1,273 0.5% - - -
India - - 7,176 3.5% - +15%
Germany - - 6,357 3.1% - +10%
Netherlands - - 6,053 3% - +7%
Brazil - - 3,813 1.9% - +5%
Turkey - - 3,099 1.5% - +5%
to execute the study. One of the key objectives of the research study includes identifying the
key investment decision that has been considered in the process of operations of the large
transportation and logistics companies about the case of A.P. Moller Maersk. The study has
also sought to present an understanding of the comprehension of Brexit and how it has been
influencing the overall operations of the companies especially including the case of A.P.
Moller Maersk. Another objective of this research study includes examining as well as the
formulation of the potential solutions that can be attained while getting appropriate findings
for the research study. As per the findings of the study, it was noted that investment decision
making forms a major part of the operations of the business in any sector. Most of the
respondents has determined that investment decision making largely contributed towards
strengthening the valuation of the business. However, a large percentage of respondents also
believed and agreed that there has to be a selection of the correct valuation model to make
effective investment decisions altogether. To conclude the study, it can be determined that
investment decision making influences the choice of valuation and overall financial analysis a
presentation of the business and the same has affirmed in the case of A.P. Moller Maersk.
List of Figures
Figure 1: Proposed structure of the dissertation………………………………………………
13
Figure 2: Per Share Earning of Maersk ………………………………………………………
29
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Figure 3: Average Freight of Maersk in different Regions in 2017
………………………….30
Figure 4: Transported Volume of Maersk in different Regions in 2017
……………………..31
Figure 5: Share of Oil Production of Maersk in 2017 ……………………………………….32
Figure 6: Percentage of revenue of Maersk in 2017 in different regions ………………….…
33
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Table of Contents
Abstract......................................................................................................................................3
List of Figures............................................................................................................................4
Chapter 1: Introduction..............................................................................................................8
1.1 Research Background.......................................................................................................8
1.2 Research Problem...........................................................................................................10
1.3 Research Aim and Objectives........................................................................................11
1.3.1 Research Aim..........................................................................................................11
1.3.2 Research Objectives................................................................................................11
1.4. The significance of the Study........................................................................................12
1.5. Research Structure........................................................................................................12
Chapter 2: Literature Review...................................................................................................14
2.1 Introduction....................................................................................................................14
2.2. Financial Factors in The Investment Decisions of Firms..............................................14
2.3. Equity Valuation Method..............................................................................................15
2.4. Significance and Objective Behind Equity Valuation Models.....................................17
2.5. Disadvantages of Equity Valuation...............................................................................18
2.6. Critically Understanding the Difference Between Corporate Theory of Valuation and
Practice in the Financial Market..........................................................................................19
2.7. Critically Analyzing the Application of Different Equity Valuation Models for
Different Purposes................................................................................................................21
2.8. Literature Gaps..............................................................................................................22
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Chapter 3: Sector Analysis of the company………………………………………………….23
3.1. Sector Review...............................................................................................................23
3.2. SWOT Analysis............................................................................................................24
3.3. PESTEL Analysis..........................................................................................................25
Chapter 4: Findings..................................................................................................................28
4.1 Summary........................................................................................................................28
4.2 Introduction
…………………………………………………………………………...28
4.3 Company Assessment and Valuation.............................................................................28
4.4 Earnings of Maersk........................................................................................................29
4.5 Influence of Brexit on Earning.......................................................................................33
4.6 Valuation of Maersk Shares...........................................................................................34
4.6.1 Pro Forma Analysis.................................................................................................34
4.6.2 DCF.........................................................................................................................36
4.6.3 DDM.......................................................................................................................38
4.6.4 RI.............................................................................................................................40
Chapter 5: Conclusion and Recommendation..........................................................................45
5.1. Conclusion.....................................................................................................................45
5.2. Recommendation...........................................................................................................47
5.3. Future research scope....................................................................................................48
References................................................................................................................................50
Appendices...............................................................................................................................56
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Appendix 1: Growth Profitability and Financial Ratios for A. P. Moller Maersk A/S A....56
Appendix 2: DuPont analysis...............................................................................................58
Appendix 3: Valuation models.............................................................................................59
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Chapter 1: Introduction
1.1 Research Background
A.P. Moller–Maersk Group, also renowned as Maersk is one of the leading Denmark
business conglomerates in the global container transportation business industry. Maersk is a
Denmark-based company and is considered the biggest container shipping line of the world.
Through its APM Terminal division, Maersk operates across 76 ports and is often considered
as the leading sea line transporter globally which connects a large number of international
markets (A.P. Moller–Maersk, 2017). Maersk’s transport and logistics operations consist of
APM Terminals, Damco, Maersk Line, Svitzer and Maersk container industry. The mission
statement of the company is to enable and facilitate the international supply chains and offer
opportunities for the global customers to trade beyond the national borders efficiently. About
the operational performance, the continuous focus on increasing investment in container
logistics which connects and simplifies global supply chain. In recent phenomenon, Maersk
Line’s investment of EUR 3.7 billion on Hamburg Süd has been considered as a significant
strategic move for the company to pursue growth as well as streamlining its global leadership
and opening new opportunities (A.P. Moller–Maersk, 2017). Maersk Line consists of 7700
seafarers that are controlled and efficiently operated by 31,693 employees. At the same time,
there are over 1,400 Hamburg Süd seafarers which incorporate 6,300 employees (A.P.
Moller–Maersk, 2017). About the recent phenomenon, Maersk is one of the world’s largest
and the most competitive corporations in the field of transport, logistics and energy sectors.
During financial 2017, the Maersk’s financial performance grew by 8.4%, which US$ 9.6
billion year-on-year. The boost has been transpired due to the increased freight rates of the
services offered by its one of the key business segments such as Maersk Line. The underlying
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volume of profit of the company during the second quarter of the fiscal year from US$ 134
million to US$ 389 million. In this context, Maersk Line alone contributed up to US$ 327
million of the total profit earned by the company. Hence, the effects of post-tax impairments
of US$ 732 relating to Maersk Tankers as well as APM Terminals, the reported financial
outcome of the company experienced a significant loss of almost US$ 265 million (Sea trade
UBM, 2018). However, Maersk Line was identified to be profitable to deliver by the
guidelines, and it had played a major role for the company to financial growth condition up to
US$ 1 billion Y-O-Y during the second quarter of the fiscal year. During this stage, the profit
was reported US$ 490 million higher in comparison to the same quarter of the last year. The
transport and logistics segment of Maersk was reported consolidated revenue of US$ 7.7
billion, which was considered as an increase of 15% as compared to the same quarter of the
last year.
Similarly, the underlying profit of the company was reported US$ 442 million which
represents a significant profit of the group and was driven by the higher container freight
rates (A.P. Moller–Maersk. 2017). Therefore, it can be said that the transport and logistics
division of Maersk, as well as its streamlined Maersk Line, have been playing a dominant
role for the company to boost its financial strengths. The current research paper will be
focusing on presenting light towards finding out the benefits that can be drawn from such an
investment analysis for protecting the interest of a potential shareholder. In this following
research paper, A.P. Moller Maersk a conglomerate company in the transportation and
logistics sector has been taken for analyzing the investment's structure of this company and
for accessing the benefits of this investment analysis.
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1.2 Research Problem
According to the latest report provided by the company in November 2016, Maersk’s
underlying profit has been identified as US$ 711 million. Additionally, the return on
investment capital also faced negative growth rate of 2.7%. Nevertheless, the free cash flow
was also witnessed to be negative, i.e., US$ 29 million. However, in the recent phenomenon,
the Maersk has been facing major challenges in the context of its financial performance. The
company delivered an unexpected loss of US$ 1.9 billion, which has negatively impacted on
by the post-tax impairments of US$ 2.8 billion specifically associated with its Maersk
Drilling of US$ 1.4 billion and Maersk Supply Service segment of US$ 1.2 billion (A.P.
Moller–Maersk, 2017). Hence, it is quite evident that the financial performance of the
company has been facing a significant downturn due to various types of trade and political
factors. Brexit is one of the major factors leading Maersk to face such major downfall in the
recent years.
The total share upheld by the UK in the European containership industry has been
significantly declined since the early period of 2000. According to an investigation, it has
been identified that UK’s share on European containership sector was reduced from 13.9%
during the year 2000 to 8.9% in the year 2015 (A.P. Moller–Maersk, 2017. In light with the
recent day context, the UK-based containership accounts for just 3.7% of the total vessel
capacity of the world, while the containership of the region is accounted for 2.2% of the
global fleet in Twenty-Foot Equivalent Unit (TEU) terms (A.P. Moller–Maersk, 2017).
Therefore, the uncertain downfall of the containership sector of the UK is an astonishing fact
and is harshly disrupted due to the split of UK from the EU.
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1.3 Research Aim and Objectives
Concerning a critical understanding of the background and primary research problem, the aim
and objectives of the current study have been designed below:
1.3.1 Research Aim
The primary aim of the research is to critically conduct an investment analysis of a large
transportation and logistics company, i.e., A.P. Moller Maersk.
1.3.2 Research Objectives
The research objectives have been developed in light with the primary aim and underlying
problem statement of the research. Concerning the aim and problem stated above, the
objectives of the study are to,
Critically identify the investment decisions of transportation and logistics service
providers such as A.P. Moller Maersk
Determine the consequences that Brexit imposed on A.P. Moller Maersk to efficient
only manage the rate of container freight rates while operating across the EU region
Examine the impact of Brexit and determine how it has imposed challenges on the
investment processes of A.P. Moller Maersk to pursue growth in transportation and
logistics operations
Investigate and formulate possible solutions regarding investment decisions for A.P.
Moller Maersk
Determine how the company can be competent while dealing with the negative
consequences of Brexit in future logistics operations
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1.4. The significance of the Study
As per the opinion of Ho et al. (2016), framing an effective capital accumulation tools for an
organization is considered as safeguarding the firm's future performance. Therefore, if the
issue arises in the same, the firm will have to face the problem regarding capital pooling from
the market that leads to the risk regarding short liquidation of the firm. Moreover, capital
acquisition tools of the firm help the management to extend the business to another market
and creation of brand value. With the help of this research, the researcher has focused
towards mitigating all future issues of the firm regarding investment and equity valuation for
equalizing the investor's risk and return rate.
1.5. Research Structure
This particular research study has been conducted mainly on the basis of five different
chapters. These have been briefly depicted hereunder.
Chapter 1 Introduction: In this particular chapter of the study, the focus would be mainly
on providing a brief of the research topic along with setting the key aims and objectives,
which will be attained or accomplished in the eventual stage.
Chapter 2 Literature Review: In this particular chapter of the study, the focus has been
mainly on analyzing past research that has been conducted about the topic of the study. This
will provide a preliminary understanding of the research topic as well.
Chapter 3 Sector Analysis: This chapter of the study has been focused on presenting as well
as justifying the methods that have been considered while conducting and completing the
study altogether.
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Chapter 4 Research Findings (Company Assessment): This chapter of the study has been
focused on presenting the findings acquired from primary sources through graphs and charts.
This chapter will also help towards answering the research question in concern.
Chapter 5 Conclusion and Recommendations: This chapter of the research will be
focused on presenting the findings and answering the research question in the process, further
concluding the overall study.
The structure of the research can be seen in the following flow:
Figure 1: Proposed structure of the dissertation
Chapter 1: Introduction
Chapter 2: Literature Review
Chapter 3: Sector Analysis
Chapter 4: Findings (Company assessment)
Chapter 5: Conclusions and recommendations
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Chapter 2: Literature Review
2.1 Introduction
This part of the study tries to demonstrate the contributing factors that led to an alteration in
the firm’s investor's interest in the UK. This chapter can be considered to be quite important
as it tends to offer significant detail on the topic based upon scholarly articles. It shall deal
with several topics that prove to be relevant to the research topic.
2.2 Financial Factors in The Investment Decisions of Firms
This section of the study by Ganoulis (1990) aims at examining the effects of information
imperfection prevailing on the financial system over the investment decision of the firm.
These types of imperfection tend to be quite important for the dynamic aspects of the
decision making of the investment as they might have an impact on the cost of flow of new
financing. Because the source tends to be decentralized nature of the system and some of the
creditors are not capable of accessing the internal operation of the firm, the cost involved
would take place in all types of financial market and while using all types of financial
instrument. The internal financing is not affected by the flow of informational problems.
However, this proves to be constrained or might as well comprise of the rising cost for the
insiders. In case of capital accumulation, there are the different cost of adjustments that tend
to be associated with the financial arrangement of the system. It can be stated that an
optimization model is created to evaluate the financial as well as investment decision of the
firm that runs in an asymmetric information environment. The policies tend to be evaluated
with the firm that has conventional adjustment cost and an efficient financial system. It is to
be mentioned that the equity finance tends to be different from that of the debt where the
equity claims offer a right of access to the internal operation of the firm. There is model
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possessing both types of adjustment cost. In case the conventional adjustment cots prove to
be dismantling cost, asymmetries take place between both over and under leveraged firms,
and this has inference for policies.
The purpose of this paper tends to be two-fold where initially it has been based on the value
optimization issues of the firm. Hence, for such issues, the authors tend to demonstrate a
theoretical model that can be utilized for the firm’s investment decisions. It comprises both
idiosyncratic as well as macroeconomic risks. In order to meet the objectives, the authors
tend to make use of the unbalanced firm-level panel data belonging to the year 1988-2013. In
order to create time variant firm-specific uncertainty, evaluation of the autoregressive model
over firm sales for all the firms that have been comprised in the sample took place. The paper
also tends to evaluate firm-specific risks as per the square of residual of the firm’s sale.
Macroeconomic risk is also evaluated by making use of the conditional variance that is
attained by making use of the ARCH model basically for consumer price index. It has been
identified that the firms would cut their degree of investment speeding when the uncertainty
increases to a great extent. It has also been identified that the sensitivity of the investment
decision that the firm makes towards macroeconomic uncertainty tends to be high in
comparison to firm-specific risks.
It is identified by Rashid (2015) that the firm-specific variables such as the cost of debt to
asset ratio, sales to asset ratio and cost of debt to asset ratio tends to be significant for
ascertaining investment decision in case of corporate manufacturing companies.
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2.3 Equity Valuation Method
According to the perception of Koller, Godehart & Wessels (2005), the term linked with
equity valuation method is divided into the balance sheet method, relative valuation method
and discounted cash flow method. The balance sheet method has a book value, replacement
value method, and liquidation value. On the other hand, the discounted cash flow model
comprises of the dividend discount model as well as the free cash model. The relative
valuation methods possess price to earnings ratio, price to sale ratio and price to book value
ratio.
It can be revealed by King & Langli, (1998) that accurate equity valuation tends to be quite
significant for the investors, managers, analysts as well as other stakeholders of the
companies. Kenneth French offered evidence from 1980 to 2006 that the investors tend to
spend more than 0.67 percent of the total value of the market each year thereby seeking for a
superior return. In the US market, there has been total spending near about 101.8 billion
dollars in the year 2006. This thereby demonstrates the significance of company valuation as
well as stock price prediction as one of the main areas of research in finance. It can be
revealed by Harris, Lang & Moeller (1994) the main objective behind the usage of the
valuation models has been to make proper investment decisions, minimize the risk associated
with bad choices and thus effectively allocate the resources. Although there is intensive
research performed and there is theoretical effortlessness about most of the valuation models,
the literature fails to offer a proper answer regarding the superiority of the particular models.
It also doesn’t provide any kinds of best practice for implementation of such models. In case
of free cash flow models, the overall value of the company is identified as the present value
of the future cash flows along with an excess of cash and marketable securities. It, however,
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deducts debt and preferred shares. Owing to the fact that the valuation of the company tends
to be dependent upon the future expectation, the model tends to be susceptible to different
types of inputs. The main advantages of these type of model are that it aims to compute a
company’s capability to pay the future dividends. The main disadvantage linked with this
type of model is that calculation in this model is quite complicated in comparison to the
standard dividend discount model.
According to the views offered by Isidro, O’Hanlon & Young (2006), the abnormal earning
model tends to value the company depending on the book value of the invested capital along
with the current value belonging to expected abnormal earnings. Owing to the fact that the
parts of the valuation tend to be dependent upon the book values, abnormal earning model
proves to be less sensitive towards future forecasts in comparison to the dividend discount
models.
As opined by Kaplan & Ruback (1995) in the case of dividend discount model, the value of
the company tends to be identified by the present value of future net dividend payments.
Because the dividend is stable for short and medium time, it becomes quite difficult to predict
the long-term dividend. Furthermore, because the model tends to be quite sensitive to
terminal value, it tends to face the dividends which become quite difficult to predict.
2.4 Significance and Objective behind Equity Valuation Models
The theory of accounting, as well as finance, states the fact that the method of equity
valuation can be considered as a systematic method through which the fair value of the assets
tends to be assessed to evaluate the risks that are linked with these types of investments. At
the micro level, equity valuation tends to be quite advantageous for the stock market
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ecosystem. The market attains the information each time and tries to factor the financial
impacts of such information on stock price. There are differences in the individual estimates
of such effect because different people might arrive with different stock prices. Hence, there
is a huge difference taking place between the market value as well as intrinsic value. The
investors would be capable of attaining huge money in case they are capable of determining
the differences. It can as well be stated that the process of equity valuation assists the
organization in attaining adequate valuation methods and tools to protect the shareholder’s
interest.
2.5 Disadvantages of Equity Valuation
Along with several advantages that equity valuation has to offer, there are numerous
disadvantages as well. The first disadvantage has been linked with the dilemma of choosing
the valuation methods. It can be revealed that there are numerous methods for valuing the
equity. Furthermore, each method possesses a distinct viewpoint. It becomes quite complex
for the analysts to ascertain the method that is suitable. The difficulty tends to arise in case
each of the method leads to different value and the analysts are supposed to ascertain which
value is to be followed.
Ignores Intangible Assets
There are distinct types of equity valuation models, and none of them considers the intangible
assets of the company such as customer retention, ownership of intangible assets and brand
loyalty. It can be revealed that these types of assets prove to be invaluable to the company.
The value related to these types of assets tends to escalate shortly. When these assets are not
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taken into consideration, investor tends to ignore a significant asset class of a certain
company. This leads to flawed equity valuation along with a wrong investment decision.
Errors in Assumption
When taking into consideration the equity of the company, there are different assumptions
that the company tends to make. For instance, the company shall reinvest its earning, or the
company shall comprise of x amount of the cash flow each year. However, the point worth
noticing is that these assumptions might prove to be wrong. The company might fail to
reinvest its income, or it might as well not earn the estimated cash flows. In case these types
of simple assumptions prove to be wrong then, it is likely to have an impact over the value of
the equity and might lead to wrong decisions.
2.6 Critically Understanding the Difference between Corporate Theory of Valuation
and Practice in the Financial Market
Theory only provides the common concept of practice, and it is an only the first step of it
which the practice uses to redesigns itself. According to Lai (2015), practice is not worthy
without the concept of theory and accounting theory helps to provide the terminology which
is not possible for practice and based on this terminology the practice of accounting collects
data from the corporate world. Therefore, practice is dependable on the concept of theory and
up gradation of the core concept of the theory is based on the experience of practice. It has
been observed that there exists a gap between the theory and practice of a corporate equity
valuation model selection.
As per the opinion of Lundholm and O'Keefe (2001), depending on the theory and concept of
accounting theory the Discounted Cash Flow model is being chosen for successful equity
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valuation model. On the other hand, it has been notified of the concept of the practice of
accounting that different macroeconomic factors are used to alter the firm’s stock valuation.
Penman (2005), included the concept that the giant global financial crisis has led to the
alteration in the financial performance of most of the UK listed corporate entities. This
change is not due to the efficient management of the firm or for the instability in their
financial leverage rather than the alteration in fiscal nature of UK.
As influenced by Courteau et al. (2001), due to this change the firm’s net earnings are
affected, but mostly it is used to affect the capital accumulation tools of the firm as this is
mostly exposed to the firm’s external market. However, the alteration in the financial
performance does not affect the cash flow position of the firm from the core operating
department, and thus the effect of such external factor is not highlighted in equity valuation
by following DCF model. This is the reason why by determining the value of equity, the
model is changing from DCF to Relative Valuation Model (RIVM). According to Ashton and
Wang (2013), the combination of linear dynamics and the RIVM helps in analyzing such
external factors of the firm at the time of capital valuation. Here, lays a gap between the
corporate theory of valuation and practice in the financial market.
Moreover, Penman (2001) has taken up the concept of topsy-turvy of the value of BITCOIN
and CRYPTOCURRENCY that leads to the fall and ups in the firm’s financial performance
in the financial market. It has been noticed that in the last five years analysis, the price chart
of BITCOIN and CRYPTOCURRENCY has touched 19,498.63 GBP in the current year as
compared to that of the years it is in the climbing position (Express.co.uk, 2018). As per the
opinion of O’Hanlon and Peasnell (2004), this investment of firms in the blockchain coins
usually leads to the upliftment of the company.
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However, if the BITCOIN record is fixed in the year of 2014 and 2015, it has been noticed
that same has been reduced in the year of 2015 compared to that of 2014 (Express.co.uk,
2018). This is used to fall its impact over the firm’s financial position that leads to the
downfall of the firm’s stock position. However, the cash flow statement of the firm does not
use to highlight the same in its updated record; this is the reason why Relative Valuation
Model (RIVM) is preferred over DCF model. Therefore, it can be said that the DCF model is
only applicable at the time of economic constraints and alteration in the internal production
department of the firm.
2.7 Critically Analyzing the Application of Different Equity Valuation Models for
Different Purposes
Depending on the usage and the application of the different equity valuation models, different
models are used for resolving any particular issues regarding the corporate firms. As per the
opinion of Gregory et al. (2005), the classification of this equity valuation model is based on
the nature and the concept of the usage of such models in finding different approaches of
firm’s equity. The classification of such equity valuation models includes two broad
categories; the absolute and the relative valuation model. As per the opinion of Callen and
Segal (2005), the absolute valuation model is framed to measure the value of the intrinsic
assets of the firm. Depending on this model the firm uses to derive the financial worth of the
company and thus helps the firm to analyze the short-term obligations of the firm’s playoff
ability. As stated by Lundholm and O'Keefe (2001), the model helps the firm to analyze its
inventory positioning,
On the other hand, the relative valuation model is used to compare the financial stability of
the firm with the one of the firm’s industry or with its peers. Therefore, Lai (2015)
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commented that this model of equity valuation is helpful at the time of determining the firm’s
position in the market as a whole and helps in undertaking the financial strategy for the firm.
The workings of relative valuation model are based on the estimated outcome of the cash
flow position of the enterprise. Courteau et al. (2001) opined from the standpoint of residual
revenue earning model of equity valuation that both models are used to operate on the cash
flow position of the firm for projecting the enterprise’s intrinsic assets value. It has been
observed by Heinrichs et al. (2013), that the absolute valuation model includes dual concepts,
the concept of equity valuation based on the Dividend Discount Model and the model of Free
Cash Flow. On the other hand, the relative valuation model includes the concept of price and
enterprise multiples by using Relative Valuation Model (RIVM).
Therefore, Jorgensen et al. (2011) commented that the application of the absolute valuation
model in addition to the Discounting Cash Flow model helps in determining the investor’s
earning metrics for its invested capital. It has been seemed to be an effective equity valuation
model at the time of rate of return and rate of discount of the investors. Myers, Callen, and
Segal (2005), played the contradictory role and opined that same equity valuation model do
not highlight the changes occurs in the finance books of the firm due to the change in
conglomerate discounting rate. The modern portfolio theory witnessed that due to the
upliftment of peers’ financial position leads to attract the keys investors and thus leads to the
issue of regarding financial leverage. Following the process of the absolute valuation model,
the firm is unable to find out the detail working of its peers and thus, this model is less
applicable over the relative valuation model.
2.8 Literature Gaps
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There is a significant gap in the prior literature for which this research work has been
prepared to fix it. There are various significant points based on which the current research has
been conducted for collecting the information regarding the investor's position on UK's
transportation and logistics industry. The prior literature has mainly focused on analyzing the
cost of capital and risk-return leverage of the potential investors (Courteau et al., 2015).
However, a gap exists there regarding not investigating the way by which the introduction of
equity valuation model can mitigate this risk. In addition to this, it has also been noticed from
the research work of Jorgensen et al. (2011), that has been focused on understanding different
external factors responsible for the change in firm's financials. The current study will fill the
gap regarding how these external factors are responsible for the change in the company's
financials along with the potential investor's interest.
Chapter 3: Sector Analysis of the Company
3.1 Sector Review
The demand for global containers has increased about 4% in the second quarter of 2017. The
growth is high in comparison with past years. Constant high imports determined the growth
in East-West region into North America together with European import growth from the Far
East. Container import to the Far East started to slow down, following robust development in
previous quarters, which adversely influenced the East-West backhaul trades. Container
demand in North-South region stayed strong as most South American import growth
continued, following the shrinkage in recent times, partially determined by high commodity
prices. Furthermore, African imports and exports have also demonstrated significant growth
rates.
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23
The digital revolution has fundamentally influenced the behaviors and trade forms throughout
the past couple of years. Nevertheless, the transportation and logistics industry has not yet
experienced any significant transformation. There are various reasons for this, among them,
the most important is the complexity of container transportation, low level of standardization
and the capability to adjust multiple unforeseen occurrences in the handling procedure since
the underlying procedure in shipping stays largely manual, paper-oriented and typically
within little standardization between different nations and authorities.
3.2 SWOT Analysis
Strength:
World’s largest ship containers
and vessel operators
Operating in more than 130
countries globally
Owing more than 100,000
employees
Diversified business including
offshore, retail outlet,
transportation, and
manufacturing.
Proper business division
Svitzer is co-operating the firm
Weakness:
Less business in the on-road and air
transportation
Have the fluctuating revenue margin
The issue in the changing legal implications
for the company
Fall in the revenue of another sector of the
company.
Issues for the longevity of the assets
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24
in APM Terminals.
Loss due to impairment
Opportunities:
Geographical extended
customer’s base of the company
Strategic concede of the
company and having advantages
of joint ventures
High technological upliftment in
the company's infrastructure
Raised ROIC by 8.50% and is in
the growing position
Threats:
Sloping of the economy
The rise in the government interruption
The rise in the competitors of a much
Chinese company
Large competition from CMA CGM (French
vessel company), China Ocean Shipping
Company and Mediterranean Shipping
company
Change in the business regulations of most
of the countries
Instability of the legal and political
condition of the region
Table 1: SWOT analysis
(Source: Maersk.com, 2018)
3.3 PESTEL Analysis
Political Economic Social Technological Legal Environmental
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25
Due to
different
issues
regarding
the rise in
terrorism
leads to
the
political
unrest in
the region
of the
Middle
East and
East
Africa and
thus leads
to the
market
issue.
Since after the
Trump
administration
the firm is
facing issue
regarding
rising in trade
policies
regarding the
multilateral
trade and new
free trade
agreement.
Have
succeeded in
gearing up the
rate of
business
activity
transparency.
Digital
innovation in
the firm has
provided the
creation of new
products and
better service
care for its
clients.
Regulation
of
International
Maritime
Organisation
(IMO) for
restricting
entrance
into the
uncharted
water.
Implementation
of air emission
for reducing the
Sculpture
oxides and
Nitrogen oxides
as per IMO
regulation has
minimized air
pollution to
0.10%
currently.
Having
the global
combat
The rise in the
cost of fuel
has raised the
Contributing
to the UN
Sustainable
Implementation
of data-driven
analytics has
The legal
implication
for the
Adoption of
ballast water as
per the
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26
issue
regarding
the
marinating
the
corruption
in the
supply
chain
firm's fuel
cost. The
annual report
shows that the
company has
raised the fuel
cost from 223
USD to 661
USD million.
Development
Goals has
strengthened
and positively
impacted on
the firm’s
labor's
employment.
boosted up the
vessel
productivity for
the firm.
landing
traverses the
platforms.
regulation of
IMO has helped
the firm in
avoid aliens in
the water
bodies.
Table 2: PESTEL analysis
(Source: Maersk.com, 2018)
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27
Chapter 4: Findings
4.1 Summary
A.P. Moller Maersk has demonstrated strong financial performance throughout recent times.
There are various divisions of the company from where it earns revenue such as terminal,
damco, svitzer and container business among others. Most of the revenue of the company
arrives from East West region and North South region. The focus of the company is to
provide best class products and services to the customers. However, the valuation of the
company is subject to various external factors, such as Brexit. Following is the analysis of the
company on the basis of different methods.
4.2 Introduction
This chapter is one of the most important parts of the research study which is used to analyze
the overall research topic of investment analysis. This chapter discusses various valuation.
methods and how they can be utilized to calculate the value of the company in future
forecasted earnings, based on information and data of A.P. Moller Maersk that have been
collected during the construction of this investment analysis report.
4.3 Company Assessment and Valuation
The revenue of the company has enhanced from US$39.9 billion in the year 2017, signifying
14.9% growth, predominantly owing to 11.7% growth in average freight rates and about 3%
increase in the quantity. The underlying profit of the company was about US$356 million
consisted of about US$1 billion. The development was mostly associated with Maersk Line.
The cash flow of the company from operational functions was about US$2.6 billion in 2017
which was influenced by high profit and partially offset by high net working capital. Maersk
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28
Line supported the cash flow with US$2.4 billion, while the other businesses of the company
were on par with 2016.
The P/E ratio of the company as of August 2018 is about 22.23. In 2018, the market
capitalization of the company was amounting to KR. 193.25 billion. The yield on the
dividend in 2018 is about 1.51%. The following figure demonstrates the actual and estimated
per-share earnings of the company.
Figure 2: Per Share Earning of Maersk
(Source: Wall Street Journal, 2018)
4.4 Earnings of Maersk
Maersk’s independent terminal business units with its distinct headquarters function in
international ports, station and internal service network with interests in 57 ports and
container terminals in about 36 nations on five continents, along with 155 inner service
functions in 48 nations. Maersk has earned a profit of about US$339 million in 2017 and a
positive ROIC with 6.7% in both East-West trades and North-South trades. The market
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29
fundamentals continue to enhance as the demand for services increases by about 4%. The
company’s average freight rate has also increased by about 22%, and the revenue has
increased by about 21% in 2017, compared with 2016 (see the following figures).
38%
39%
23%
Average Freight Rates
East-West RegionNorth-South RegionIntra-regional
Figure 3: Average Freight Rates of Maersk in Different Regions in 2017
From the data, it can be observed that average freight rate is higher in North-South region
with US$ 2259/FFE in 2017. The freight rate of East-West region is US$2229/FFE. The
development of market mirror the freight rate which was mostly increased in East-West
region by about 36%, supported by the solid development of about 17% in North-South trade.
Business mainly determined the growth in East-West trade from Asia, Europe, and Pacific
region. The development in North-South business was determined by every trade, specifically
West Central Asia. The freight revenue was about US$5.5 billion in 2017 with other revenues
were about US$588 million. The trade quantity increased on head haul by about 5.2% but
offset by a reduction in backhaul by about 5.6% as market dynamics made backhaul
transportation less attractive on certain trades. Volume chiefly enhanced on West Central
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30
Asia and Intra Asia trades, which are mostly determined by growing demand (see the
following figure).
35%
48%
17%
Transported Volume
East-West Region North-South Region Intra-regional
Figure 4: Transported Volume of Maersk in Different Regions in 2017
The international container demand increased by about 4% in 2017 in comparison with 2016.
Maersk oil division has also demonstrated a profit of about US$191 million and ROIC of
about 18.5%. The profit is driven by high average oil prices of about US$50 per barrel in
2017, in comparison with US$46 per barrel in 2016. The oil price is also influenced by the
production in different nations (A.P. Moller, 2017) (see the following figure).
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31
38%
21%
21%
13%
4%3%0%
S h a re o f Oi l P rod u ct i on
Qatar UK Denmark AlgeriaUSA Kazakhstan Iraqi Kurdistan
Figure 5: Share of Oil Production in Maersk in 2017
The following table demonstrates where Maersk operates along with the proportion of total
revenue for every continent.
Region
(percentage)
Maersk
Line
APM
Terminal
Dam
co
Svitz
er
Contain
er
Total
percentage
West Central
Asia
4 6 5 4 0 19
East-West
Region
2 1 1 0 4 8
North-South
Region
8 5 7 10 8 38
Intra-regional 6 7 8 5 9 35
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32
Total
percentage
20 19 21 19 21
19%
8%
38%
35%
Revenue
West central asiaEast-West RegionNorth-South RegionIntra-regional
Figure 6: Percentage of revenue of Maersk in 2017 in different regions
The value of Maersk shares is based on multi-criteria valuation method comprising pro forma
analysis, discounted cash flow (DCF) model, dividend discount model (DDM) and residual
income (RI) valuation method.
4.5 Influence of Brexit on Earning
Brexit is forecasted to have a direct influence on the earning of Maersk because the nation
handles only 21% of oil production. However, on the international extent, the UK only
handles only 1.4% global container quantity. By shipping and logistics operators, Brexit will
rattle the regional supply chains as Britain recreates the trading associations and regulations.
Therefore, Brexit will only impact on the business of East West region to certain extent.
Brexit vote can have two divided influence on business, possibly cutting into movement of
products but also stimulating more demand for services to assist retailers and producers
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33
circumnavigate the changing regulations and trade rules. Due to Brexit, shares of
transportation and logistics organizations has influenced throughout the world. For instance,
the stock of XPO Logistics has fallen 14.9% to $24.16 in 2016. The US-based logistics
companies are heavily exposed to the influence of Brexit, with about 12% revenue appear
from the UK. 2.2% also reduced the stock of United Parcel Service to $104.83 in 2016. In the
similar context, the stock of Maersk has reduced to about 3.1% in 2016 (Page & et al., 2016).
4.6 Valuation of Maersk Shares
The value of Maersk shares is based on multi-criteria valuation method comprising pro forma
analysis, discounted cash flow (DCF) model, dividend discount model (DDM) and residual
income (RI) valuation method.
4.6.1 Pro Forma Analysis
Pro forma analysis is regarded as an analytical projection of the possible financial position of
Maersk on the basis of historical information and possible earning and costs owing to
forecasted changes. It is basically performed in conjunction with the financial assessment.
The pro forma analysis of Maersk for the period of 2015 to 2022 is as follows.
Financial ratios and normalized
cash flow assumptions
201
5
201
6
201
7
201
8e
201
9e
202
0e
202
1e
202
2e
Norm
alized
Growth rate - 9.6
%
-
0.9
-
4.3
0.4
%
-
15.
-
12.
-
12.
1.5%
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34
% % 3% 0% 7%
EBITDA Margin33.4
%
28.
3%
23.
8%
24.
0%
25.
1%
22.
5%
19.
1%
11.
4%15.5%
EBIT Margin20.5
%
17.
7%
13.
6%
14.
2%
10.
3%
2.8
%
-
1.4
%
-
10.
4%
-
112.4
%
After tax EBIT Margin
(tax rate of 35%)
13.3
%
11.
5%
8.8
%
9.3
%
6.7
%
1.8
%
-
0.9
%
-
6.8
%
-
73.0%
After tax return on
capital employed (tax
rate of 35%)
8.7
%
7.8
%
5.8
%
5.7
%
4.5
%
1.1
%
-
0.5
%
-
3.6
%
-
121.7
%
Fixed assets / Turnover
ratio
146.
5%
141
.1%
146
.3%
157
.2%
144
.7%
154
.8%
172
.3%
178
.1%50.0%
Working capital /
Turnover ratio
6.1
%
5.6
%
5.7
%
6.0
%
6.1
%
7.2
%
8.2
%
9.5
%10.0%
Asset turnover 0.7x0.7
x
0.7
x
0.6
x
0.7
x
0.6
x
0.6
x
0.5
x1.7x
4.6.2 DCF
DCF method has been used to calculate the value of the company. Within this method, the
value of company cash flow is regarded to be equivalent to the sum of the present value of
the cash flow it generates, adjusted for net debt and net cash at the valuation date. The
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35
discount rate is calculated by utilizing the market data observed at the date of assignment
which mirror the degree of risk inherent in the cash flow projections for Maersk.
There are various methods which can be utilized to determine the discount rate. In this
research, the weighted average cost of capital (WACC) method is used to determine the
discount rate for Maersk.
WACC = Cost of equity × (% equity) + cost of debt × (% debt) × (1- tax rate)
Cost of equity = Risk free rate + Beta × (market rate of return – risk free rate of return).
The current risk-free rate for ten years treasury constant maturity is about 0.41. Beta is the
sensitivity of the additional forecasted return. In this context, the beta of Maersk is 1.06. The
expected market rate of return is about 6.41. Hence, the market premium is
The market rate of return – risk-free rate of return = 6%. Therefore, the cost of equity will be
Cost of equity = 0.41 + 1.06 × 6 = 6.77%.
The cost of debt can be calculated by dividing the average debt of the company with the
interest expense. In the year 2017, the interest expense of the company was about US$630
million. Its total book value of debt was about US$13320 million. Hence, cost of debt =
(630/13320) × 100 = 4.73%.
The tax rate for the company is about 35%.
The % of equity was 52.5%, and % of debt was 36.39% in 2017.
Therefore, WACC for Maersk is
6.77% × 52.5 + 4.73% ×36.39 × (1 – 0.22)
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36
= 3.55 + 1.72 × 0.78 = 4.11 (GuruFocus, 2018)
Therefore, on the basis of the DCF model, the value of the firm will be as follows:
Free cash flows
calculation
In US$ million 2015201
6
201
7
201
8e
201
9e
202
0e
202
1e
2022
e
Norma
lized
EBIT8,81
2
6,73
2
6,74
4
4,91
1
1,1
30
(49
8)
(3,22
5)
(35,291
)
- Corporate income
tax (35%)
(3,0
84)
(2,3
56)
(2,3
60)
(1,7
19)
(39
6)174
1,12
912,352
- Depreciation and
amortization
5,29
2
5,06
5
4,62
8
7,00
8
7,9
44
7,2
65
6,75
740,160
- Change in
working capital(25) (26) (28) (17)
(18
)
(18
)(10) (214)
- Capital
expenditures
(781
)
(784
)
(784
)
(712
)
(78
9)
(74
1)
(746
)(757)
Free cash flow 10,2
14
8,63
1
8,20
0
9,47
1
7,8
72
6,1
82
3,90
516,249
Free cash flows
present value
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37
In US$ million 2015201
6
201
7
201
8e
201
9e
202
0e
202
1e
2022
e
Norma
tive
Discounting factor 0.96 0.92 0.89 0.850.8
2
0.7
90.76
Free cash flow
present value
9,82
1
7,98
0
7,28
9
8,09
6
6,4
70
4,8
86
2,96
7
Terminal value493,
923
Total present
value
541,
432
4.6.3 DDM
DDM is another method of valuation which uses the discounting forecasted dividends to the
present value. The method is based on the thought that the expected value of dividend can
evaluate intrinsic value of an organization it will generate in the future. The key principle
behind this method is the NPV of dividend, which draws from the thought of the time value
of money. The following table demonstrates the value of Maersk by the DDM model.
Stage 1: Explicit Forecast Horiz
on
Historical Data Horizon (ROI > k) (ROI
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38
= k)
Period 201
5
201
6
2017 201
8e
201
9e
202
0e
202
1e
2022e 6
Inflation Rate 2.1
%
0.7% 1.9
%
1.9
%
1.9
%
1.9
%
1.9% 1.9%
Real Return on
Investment (Real ROI)
12.
2%
8.3% 8.9
%
8.2
%
11.
0%
2.9
%
-2.7% 4.0%
Nominal Return on
Investment (ROI)
14.
6%
9.1% 11.
0%
10.
3%
13.
1%
4.9
%
-0.9% 6.0%
Real Growth Rate in Dividend
(Real g)
-
4.6
%
17.8
%
4.5
%
4.1
%
5.5
%
1.5
%
-1.4% 2.0%
Nominal Growth Rate in
Dividend (g)
-
2.8
%
20.0
%
6.4
%
6.1
%
7.5
%
3.4
%
0.5% 3.9%
Nominal Dividend /
Share
$36
.00
$35
.00
$42.0
0
$44
.70
$47
.42
$50
.98
$52
.70
$52.9
8
$55.0
6
Continuation Value /
Share
$2,70
1.79
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39
Sum of Future Div. & Cont.
Value/Share
$44
.70
$47
.42
$50
.98
$52
.70
$2,75
4.76
PV of Future Div. &
Cont. Value / Share
$43
.00
$43
.86
$45
.32
$45
.06
$2,26
4.42
Intrinsic Value / Share $2,44
1.66
(The Wall Street Journal, 2018)
4.6.4 RI
RI is another method of valuation of a company which formally considers the cost of equity
capital. Residual in this sense signify the additional of any opportunity expenses evaluated
about the book value of equity shares. RI is hence the income created by an organization after
accounting for the actual cost of capital. Following is the RI method for valuation of Maersk.
Amounts in US$ 2015 2016 2017
2018
e
2019
e 2020e 2021e 2022e
Earnings Per Share
(EPS)
216.0
130.0
171.0
190.3
201.1
212.3
223.9
235.9
Expected EPS
Growth
-
7.6%
Dividend Per Share
(DPS)
36.0
35.0
42.0
116.2
122.9
129.7
136.8
144.1
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40
Book Value Per
Share (BVPS)
1,
575.0
1
,658.
0
1,
801.0
1,
875.0
1,
953.3
2,035.
9
2,123.
1
2,214.
9
ROCE/ROE 8.3%
10.3
%
10.6
%
10.7
% 10.9% 11.0% 11.1%
Residual Earnings
-59.0
-28.0
-25.8
-23.9
-22.1
-20.4
-18.8
Growth in Residual
Earnings
-
52.6
%
-
7.6%
-
7.6% -7.6% -7.6% -7.6%
Long-Term Growth
in EPS
31.5
%
11.3
% 5.7% 5.6% 5.5% 5.4%
Calculation of Speculation
in CMP
Value of Equity
Latest BVPS
1,575
Value from Short-
Term Accounting
(Year 1)
-53
Page
41
Value from Short-
Term Accounting
(Year 2)
-208
Total Value excl.
Speculative Value
1,314
Current Stock Price
1,506
Speculative Value
192
Calculation of Growth Forecast
Implicit in CMP
Infosys 2018 2019 2020 2021 2022
Forecasted EPS
190.3
201.1 212.3 223.9 235.9
Mr. Market's Implied
EPS Growth Rate
-
7.6% -7.6%
-
7.6%
-
7.6%
-
7.6%
Dividend Payout
Ratio
61.1
%
51.1
%
42.9
%
42.9
%
42.9
%
Closing Book Value /
Share (FY14)
1,
875.0 1953 2035 2123 2214
Reqd. Rate of Return
( r ) 0.4% 0.5% 0.6% 0.6% 0.6%
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42
Year 2018 2019 2020 2021 2022
Beginning Book
Value / Share
1,
875.0
1
,949.
0
2,
047.4
2,
168.6
2,
296.5
Forecasted EPS
190.3
201.1
212.3
223.9
235.9
Dividend payout ratio 61% 51% 43% 43% 43%
Dividend / share (Rs)
116.3
102.8
91.1
96.1
101.2
Forecasted ROE
10.1
%
10.3
%
10.4
%
10.3
%
10.3
%
Required rate ( r ) 0.4% 0.5% 0.6% 0.6% 0.6%
Forecasted Residual
Income 9.7% 9.8% 9.8% 9.7% 9.7%
Value of Equity
4,436
4,596
4,803
5,071
CMP
1,506
Variation 195%
(Maersk, 2017)
From the analysis, it can be observed that various valuation methods provide a significant
outcome to the valuation of the company. These methods are useful for investors for
analyzing and predicting the present and future performance of the company and accordingly
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43
make investment decisions. An increase in investment and its impact on the average
performance of the organization has helped to maintain the significance of the proper
investment analysis of this company.
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44
Chapter 5: Conclusion and Recommendation
5.1. Conclusion
In the light of the above analysis, it can be comprehended that the scholar of the present
research has been provided with a clear knowledge of the investment analysis of one of the
renowned transportation business industry A.P. Moller-Maersk Group. The headquarter of
Maersk is situated in Denmark. Maersk is one of the biggest shipping lines in the world that
supports the worldwide demand for energy. Therefore, it is mainly about transportation of oil
and gas across the 76 ports. In addition to that, this water transportation system contributes to
the global supply chain up to a great extent. However, as per the present phenomenon,
Maersk Line is one of the largest water transportation companies that has contributed US$
327 million maximum to the company. On the other have several fluctuation modes of profit
and loss can also be identified in the study. It cannot be denied that A.P. Moller-Maersk
Group of Denmark has contributed to a great extent for the overall economic growth of the
world. It has provided the countries with the most convenient and easier way to for import
and export.
Therefore, the current research has been selected certain aim and objective to research a
significant way so that the most desired outcome of the research can be accomplished. Hence,
the scholar has been initiated to identify the investment decision-making strategies that have
implemented by A.P. Moller-Maersk Group. It can be certainly asserted that the strategies
that have been implemented by the respective transportation and logistics industry were
significantly facilitated over the inclusive development of the company. In addition to that, it
can also be identified from the current research Brexit has executed on A.P. Moller-Maersk to
grip the cost of merchandise container awhile transporting to the EU region and the
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45
consequences of which greatly affected over the economic background of the company’s. It
has certainly contributed to the growth and development in transportation and logistics
operations. On the other hand, how the company has implemented appropriated strategies
while facing with the dissatisfactions of Brexit so that the further operations of the logistics
can be directed has been depicted by the scholar.
However, the investment policy of the company was not always resulted as positive.
Sometimes it reflected negatively due to apply some imperfect financial policies as well as
affect the price movement of new funding. Therefore, as per the analysis above it is clear that
creditors are not always able to interfere in the in-house actions of the company.
Consequently, at the time of employing all kinds of economic tools, the invested money of
the creditors is supposed to revolve in all types of financial market. Therefore, the scholar has
been presented a clear concept of the equity valuation process.
Hence, it can be asserted that if the investment of the company increases to high, it will
certainly affect upon the overall state of an organization. It will enable an organization to
bring enhancement in the progress of performance.
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46
5.2 Recommendation
Throughout the investigation above about the influential investment policies and its
implementation by one or the largest large transportation and Logistics company A.P. Moller
Maersk of Denmark. Grounded on the above aspects, it can be recommended that RIO (return
on investment) is a vital factor that needs to be properly predicted before ensuring any
investment (Cotrell et al., 2014). On the other hand, logistic service providers and shippers of
that organization need to play a crucial role to bring development and perfection in logistic
quality standards. There a big amount of investment is required. Therefore, as it is a business
based on water transportation, so many new technologies need to be implemented. There
might occur lack of knowledge among the old existed team members. After investing for the
technological up-gradation, if it cannot be maintained and operated properly then the entire
investment will be useless. In this respect, it can be suggested that a proper arrangement of
training and development is required where all the processes of handling new equipment need
be trained (Choi Chiu and Chan, 2016). The higher authority of the respected company is
suggested to find appropriate investors as well as leave effective market share to bring
development in the firm. Accordingly, the satisfaction of the shareholders needs to be the
vital concern of the company’s consultants. In case of the undesirable result against an
investment can leads the investors towards dissatisfaction and the company may cause to
penalize for that. For promoting the logistic services along with the transportation chain there
need to be implemented in some virtual freight villages. On the other hand, logistic
management of the company cannot be fulfilled without appropriate warehouse management
which is largely reliant on the types of goods. Therefore, sudden inflation in the market may
befall. In such a circumstance, the company needs to be prepared for that before making an
investment decision. The company higher authorities and decision-making members need to
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47
have sufficient knowledge about the consequences of an investment (Evangelista Colicchia
and Creazza, 2017). Here required to have some expert and skilled advisors who can make an
appropriate prediction. That can enable the A.P. Moller Maersk of transportation and
Logistics Company to resolve all the probable risk factors that may occur in future. Joint
venture with another working platform of the same to support the infrastructural development
and to cope with the regulatory challenges can be effective enough for the company.
On the other hand, there has to be taken some risk mitigation strategies by the company’s
governing body. Hence, there should be a suitable budget plan before investment after
verifying the area of investment as well as the inverted market. Hereafter, cost-effective
packaging to confirm low investment can be highly beneficial for the company. However,
there always remains viability to become a change in exchange rate while importing and
exporting with the other countries. A sudden change in exchange rate may bring fluctuations
on a budget (Cotrell et al., 2014). Accordingly, such things are essential to be prefixed by the
investors. In case of a sudden rise in the budget can cause to lead the project towards failure.
Moreover, a logistics firm should select for the shortest and safest way of determining the
best route to deliver. Consequently, it can be beneficial for both saving time and money as
well.
5.3 Future research scope
This segment of research will focus towards exhibiting the possible future scope with the
same topic for the impending research scholar. Therefore, after thoroughly analyzing the
present topic it can be said that investment analysis cannot be completed without analyzing
the expense of a company. Consequently, a proper expense investigation of the selected
company can be added further to get a better outcome of the research. There remains a
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48
greater possibility for the future research scholar to explore and enhance the quality
consequence of the research. On the other hand, Investment analysis is no doubt a major
factor for a transportation and logistics company. In addition to that, the importance of
analyzing the management process cannot be overlooked of the respective company upon
which the investment outcome is largely dependent.
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49
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Appendices
Appendix 1: Growth Profitability and Financial Ratios for A. P. Moller Maersk A/S A
Growth Profitability and Financial Ratios for A.
P. Moller Maersk A/S A
Financials
2013
-12
2014
-12
2015
-12
2016
-12
2017
-12
Gross Margin 66.29 65.4
2
66.6
5
54.8
5
52.8
Operating Margin 13.97 11.1
6
4.64 0.9 2.07
EBT Margin 13.97 11.1
6
3.59 -1.09 0.08
Net Margin % 7.28 10.5
4
1.96 -5.47 -3.89
Return on Assets % 4.81 6.99 1.21 -3.14 -1.94
Return on Equity % 9.33 12.3
2
2.06 -5.85 -3.9
Return on Invested Capital % 6.39 9.16 1.67 -4.03 -2.61
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Interest Coverage -5.15 1.4
Accounts Receivable 6.21 5.92 5.57 6.24 6.11
Inventory 1.68 1.65 1.25 1.41 1.54
Accounts Payable 7.22 7.67 8.04 8.02 8.3
Current Ratio 1.36 1.69 1.16 1.04 1.63
Debt/Equity 0.32 0.26 0.33 0.43 0.49
Days Sales Outstanding 37.37 33.4
3
34.2 37.5
1
45.2
8
Days Inventory 39.17 27.8
4
26.0
7
23.2
7
22.9
4
Payables Period 128.5
4
124.
11
139.
74
140.
45
126.
84
Receivables Turnover 9.77 10.9
2
10.6
7
9.73 8.06
Inventory Turnover 9.31 13.1
1
14 15.6
8
15.9
1
Asset Turnover 0.66 0.66 0.61 0.57 0.5
(Source: Financials.morningstar.com, 2018)
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Appendix 2: DuPont analysis
DUPONT ANALYSIS
2013-
12
2014-12 2015-12 2016-
12
2017-12
Net income 11,698 12,319 9,550 6,559 3,103
Revenue 49,278 47,569 40,308 35,464 30,945
Net profit margin 0.23739 0.25897 0.23693 0.18495 0.10027
Revenue 49,278 47,569 40,308 35,464 30,945
Total assets 74,646 68,844 62,408 61,118 63,227
Assets turnover 0.66016 0.69097 0.64588 0.58025 0.48943
ROA 0.35959 0.37479 0.36683 0.31874 0.20488
Equity 39,902 41,542 35,087 31,258 30,609
ROE 0.29317 0.29654 0.27218 0.20983 0.10138
(Source: Financials.morningstar.com, 2018)
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Appendix 3: Valuation models
Measures 2013-12 2014-12 2015-12 2016-12 2017-12
Dividend payout ratio 25 38.6 26.5 26 20.3
Growth rate -18.72 -3.47 -15.26 -12.02 -12.74
Required rate of return 6.25 5.72 3.76 2.47 2.5
DDM -39.535 76.6853 -37.469 -35.447 -27.238
Cash inflow 2,754 122 837 -47 -1,003
WACC 6.52 5.27 4.76 3.47 2.85
DCM -498.91 -28.571 -222.61 19.0283 542.162
Net operating income 9,265 8,761 7,969 4,326 2,596
Average operating assets 67,855 67,855 67,855 67,855 67,855
rate of return 6.25 5.72 3.76 2.47 2.5
Residual income
[RIVM]
-414829 -379370 -247166 -163276 -167042
(Source: Financials.morningstar.com, 2018)
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