Drewry: Hapag IPO ‘Competitively Priced’


A key equity research note released by Drewry Maritime Equity Research (DMER) discusses the timing and merits of the Hapag-Lloyd AG public offering, which has been questioned given the challenging environment facing the container shipping sector.

The consultants note that the industry stands in the midst of prolonged low freight rates and subdued global demand. However, DMER has recognised the value in one of the world’s largest container shipping companies.

Drewry believe the near-to-medium term outlook for the container shipping industry is flawed 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.

Is container shipping sailing into a storm?

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.

Drewry 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, said: “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.”

Hapag-Lloyd announced an IPO listing on the Hamburg and Frankfurt stock exchanges, with the IPO potentially valuing the company at several billion dollars.

Drewry View: 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.

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