“We can say without reservation that, in investing, spinoffs are the closest thing you can find to a sure thing. It all comes down to the incentives when companies spin off a subsidiary or division and hand out shares to their shareholders. Study after study has shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years….” Pat McKeough shows how spinoffs and other “special situations” can create windfalls for informed investors.
A.P. MOELLER-MAERSK A/S (ADRs) $6.57(Over-the-Counter Pink Sheets symbol AMKBY; Manufacturing & Industry sector; Shares outstanding: 4.15 million; Market cap: $27.2 billion; Dividend yield: 1.8%; Takeover Target Rating: Lowest; www.maersk.com) is the world’s largest provider of container shipping services, accounting for about 15% of the global shipping capacity. It has over 600 ocean-going vessels as well as interests in over 250 ports and inland terminals in 130 countries.
Based in Copenhagen, Denmark, sea captain Peter Maersk Moeller and his son Arnold Peter Moeller founded the company (which operates as Maersk) in 1904. The family still controls just over 50% of the business through voting shares.
In the past century, Maersk has expanded into other areas. Those include logistics services and offshore oil drilling.
A.P. Moeller-Maersk:
Original founded as Svendborg Steamship
Shares mainly trade on the Copenhagen Nasdaq exchange
The hijacking of the company’s Maersk Alabama ship was the subject of the 2013 film “Captain Phillips”
Maersk’s revenue rose 2.6%, from $33.9 billion in 2013 to $34.8 billion in 2014. Revenue then fell 13.3%, to $30.2 billion in 2015 due to weaker demand for shipping services. Lower oil prices also hurt revenue from its drilling operations.
Revenue fell a further 9.6%, to $27.3 billion in 2016, as lower average shipping rates offset higher volumes. Shipping volumes and rates both improved in 2017 and pushed up revenue by 13.5% to $30.9 billion.
Maersk’s earnings rose from $0.42 per ADR (or a total of $2.0 billion) in 2013 to $0.49 per ADR (or $2.3 billion) for 2014. They then fell to $0.42 per ADR (or $1.9 billion) in 2015.(Each American Depositary Receipt is equal to 200 Maersk non-voting shares.)
The company then lost $0.13 per ADR (or $469 million) in 2016, and $0.06 per ADR (or $194 million) in 2017. If you exclude unusual items, including a cyberattack that disrupted the logistics business, it earned $356 million in 2017.
Following a strategic review, Maersk recently sold oil tanker operations (161 vessels) for $1.2 billion. It also sold its Maersk Oil division, which explores for oil in the Danish portion of the North Sea, to Total S.A. for $7.45 billion.
The company now plans to spin off its remaining energy operations—Maersk Drilling—as a separate company. With a fleet of 24 rigs, that firm provides offshore drilling services to major oil companies.
Maersk has yet to announce details of the spinoff, but plans to complete the transaction in 2019.
Meantime, in the quarter ended September 30, 2018, overall revenue from continuing operations jumped 30.6%, to $10.1 billion from $7.7 billion a year earlier. That’s because companies increased their shipments from China to the U.S. before new tariffs took effect. The company earned $0.05 per ADR (or $191 million) compared to a loss of $0.03 per ADR (or $112 million).
Maersk used the cash from its asset sales to pay down its debt. As of September 30, 2018, its long-term debt of $13.5 billion was a somewhat high 50% of its market cap. It also held cash of $4.3 billion.
The stock has trades at 18.3 times its latest 12-month earnings of $0.36 per ADR. The $0.12 dividend yields 1.8%.
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