Hapag LLoyd: Not so cheap

Hapag Lloyd reported 1Q22 with a 178% gain in EBITDA and increased YE22 guidance by 15% to US$15bn (middle of range) as TEU rates continued to increase driving margins up despite higher oil costs and flat volumes. However, the company believes TEU rates are near a peak and could decline in 2H22, which is in line with industry expectations.

The key question is how far due TEU rates decline as the world eventual leaves behind the logistic bottleneck and less frantic demand. My view is that rates could settle to provide 25% EBITDA margins, that the industry is far more capital/capacity disciplined, they have learned that customers can pay more while the upcoming emission standards will require a significant scrapping of polluting ships to be replaced by LNG powered one. All combine to make the industry substantial more profitable than it has been in the last 20 years.

Hapag, however, is relatively well valued vs peers with a 200% premium to ZIM and Maersk. Part of this could be due to its low free float that can multiply buy and sell volume. So far, the market is not convinced that sector can maintain higher TEU rates and thus we see ZIM and Maersk at 2x EV/EBITDA.

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