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Subscribe to Hapag-Lloyd’s IPO, advises Drewry

The timing and merits of the Hapag-Lloyd AG public offering have been questioned given the challenging environment facing the container shipping sector. The industry stands in the midst of prolonged low freight rates and subdued global demand. However, we at DMER recognise the value in one of the world’s largest container shipping company and advice investors to “SUBSCRIBE”.

Drewry believes the near-to-medium term outlook for the container shipping industry is marred by oversupply, which will continue to plague the sector in the foreseeable future. However, Hapag Lloyd’s well-diversified presence across routes reduces the risk from the slump on a particular trade lane. The company is among the top five liner companies in capacity terms, and its large scale of operations accompanied by synergies from cost saving programmes will ensure that it remains profitable despite the challenging business environment.

In terms of valuation, Hapag Lloyd’s price band of EUR 23–EUR 29 per share translates into a 2016 P/B of 0.52x to 0.66x, compared with the average P/B multiple near 1x for the industry peers. We believe the IPO is competitively priced even after factoring in the lower return on equity and related sector headwinds.

Rahul Kapoor and Nilesh Tiwary, analysts at DMER stated, “We recommend investors to subscribe to the Hapag Lloyd’s IPO given much of the underlying sector disappointment has been discounted in the price. We see the offering as attractively priced, providing an opportunity to take exposure in one of the largest and financially sound container shipping companies. Even as meaningful upside in the short term and sector recovery on the ground remain elusive, DMER believes the current valuations are likely to provide a floor to the share price and gradually create value for its shareholders.”

Drewry Maritime Equity Research (DMER) would advise “SUBSCRIBE” to the Hapag Lloyd IPO. Drewry believe it is a good buy despite the weak market as the offering price has already discounted the challenging market environment. The company at the time of listing would be the cheapest container operator of its size. Post the merger with CSAV container operations, HL presents a compelling combination of scale of operations, is less reliant on the volatile intra-Asia market, and has seasoned management.  HL could be one of the most attractive plays in a difficult container shipping market. While HL’s offering is at a much larger discount to the industry,  estimated Hapag Lloyd’s fair value is at Euro 32, a 40% upside from the lower band of Euro 23. Hapag Lloyd scores an Orange light on DMER’s bespoke risk ranking matrix, indicating Medium risk and stable outlook over the long term.


Source: Drewry


October 2015
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