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

Page

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

Page

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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