WALLENIUS WILHELMSEN LOGISTICS Consensus is catching up A similar share price reaction has only been seen twice post the Glovis spin-off and the merger with Wallenius, showing the gap between earnings capacity at cycle lows and market expectations. We are still above consensus EBITDA for 2018e, although at half that of post Q2. We find WWL attractive as merger synergies help bridge the gap ahead of a slow improvement in auto shipping and gradual recovery in mining shipments, driven by higher metal prices and an age-related replacement cycle. We reiterate our BUY recommendation and have raised our target price to NOK67 (60).
Estimates up on lower costs. We have raised our 2017–2019e EBITDA by an average of 5% per year and 2017–2019e net profit by 14% per year on average following a strong Q3. As volumes and rates broadly developed as we had expected in Ocean, it is lower costs that have primarily triggered our positive estimate revisions as a result of an earlier than expected impact from synergies combined with more efficient operations. Consensus is gradually closing the gap to our forecasts, as while we were 15% above consensus on 2018e EBITDA post Q2 results in August, we are now only 6% above. We are 7% above consensus on Q4 2017e, while we are somewhat more cautious on 2019e, being 5% below consensus. We believe our estimates are still cautiously optimistic. We forecast WWL’s EBITDA to rise to USD794m by 2018e, up USD32m from run-rate-adjusted Q2–Q3 2017e. Thus in our view our forecasts including improved synergies and market recovery are only cautiously optimistic. Just 50% of the targeted USD100m in synergies were reflected in the results as of Q3 2017. For 2018e EBITDA, we forecast Ocean at USD694m and Landbased at USD116m, offset by a USD16m charge from Holding. Reiterate BUY recommendation, target price raised to NOK67 (NOK60), based on a 2018e EV/EBITDA of 8.0x, implying a P/E of 12x, up from the current 9.7x (our estimate). We forecast a 2018e DPS of USD0.29, resulting in a yield of ~4.7%.