A fundamental valuation of MPC Container Ships as of January 3rd, 2022

Abstract

The valuation in this thesis deals with a fundamental valuation of MPC Container Ships as of 3 January 2022. In addition, a relative valuation is also included. The first part consists of introducing MPC Container Ships, the shipping industry, and their competitors. Although MPC operates in a competitive market, they have experienced rapid growth in revenues after the Covid-19 pandemic. Section 4 elaborates on valuation theory and argumentation for the choice of valuation method. A combination of the discounted cash flow and relative valuation have been conducted. Furthermore, a strategic analysis follows in section 5, which indicates the company's competitiveness based on internal and external factors. Findings of the analysis shows that MPC operates in a market with a high competition, indicating that the shipping industry has more newcomers as the industry is profitable.

In section 6, the financial statements of MPC Container Ships are presented, followed by a risk analysis in section 7 that addresses short-term and long-term payment capabilities. MPC has a strong balance sheet, and the liquidity and solvency risk are low. As a result of the strategic analysis and analysis of the financial statements, future cash flows are estimated and presented together with an explanation. Furthermore, in section 8 and 9, future cash flows were discounted with a weighted average cost of capital to calculate the value of the equity of MPC Container Ships. Next, in section 10 the terminal value along with that first value estimate is presented. In section 11, a relative valuation is performed to support the result from the discounted cash flow.

Finally, a conclusion is presented based on the value estimate received from the discounted cash flow and relative valuation, followed by a trading recommendation. As of 3 January 2022, the market price of MPC stocks was NOK 25.95. The discounted cash flow and the relative valuation conducted in this thesis, resulted in a fair value of NOK 38.33 and NOK 36.88. Our estimated fair value of the stock is therefore approximately 40 percent above the market price. Based on the market outlooks and estimated stock price, our recommendation is to buy the stock of MPC Container Ships.