Though news reports are no longer highlighting the ships anchored in San Pedro Bay, the container shipping segment continues to pump out strong earnings.
In concert with an overall drop in equity markets, the continued strength in global commerce (including the container trades) is bringing possible buying opportunities for investors following the shipping “names.”
Zim Integrated Shipping Services, or just “ZIM” for short (that’s its symbol on the New York Stock Exchange, where it’s been trading since its early 2021 Initial Public Offering), has been one of the sector’s best performers.
Consider the reaction of investment analyst J Mintzmyer to ZIM’s just-released earnings report of 2022’s Q1. His Value Investor’s Edge platform caught the maritime bug (and got onboard the ZIM investment voyage) well before other researchers- both independent and at Wall Street firms. In a Twitter post to his followers, Mintzmyer said: “They just did roughly their entire Feb 2021 IPO price in a single quarter of earnings!”.
In their IPO, now 15 months ago, ZIM raised $217 million, selling equity priced at $15 / share. In the just released earnings report, the quarterly earnings per share came in at $14.19/ share. Mintzmyer also noted that these earnings were very near the midpoint of his earlier estimates for the Q1 earnings- which exceeded the consensus of analysts following the company.
ZIM stock had reached its highest trading prices, above $90/share, in mid-March, 2022, shortly before the overall equity markets began their current descent. Recent trading activity has seen its shares changing hands in a range generally between the mid $50’s and mid $60’s.
Jefferies & Company, a leading investment house with a long-time shipping franchise, released a report on ZIM, with a strong “BUY” recommendation. In their sensitivity analysis, its analytical team took a look at the broader marketplace for container shipping. They said: “Container freight rates have come off peak highs, but are still averaging much higher during 2022 compared to last year. Year to date, the Shanghai Container Freight Index has averaged $4,647/teu while the China (Export) Container Freight Index has averaged $3,331/teu, up 64% and 71% respectively. We believe freight rates will stabilize during the peak-demand summer season, evidenced by the CCFI being up last week after being down 11 of the last 13 weeks, but will steadily begin to normalize (decline) during 2H22.”
If the prices for moving 20’s and 40’s calm down (as these indices are seeming to indicate), that is not necessarily a bad thing. The Jefferies analysts refer to the financial ratio of Enterprise Value to EBITDA, which (highly simplified) works back to the value of the company’s balance sheet compared to its quarterly cash flow. They say, “We believe shares will trade at a higher EV/EBITDA multiple in coming years as rates come off peak levels.” Thus, even if the $/box eases, the broker believes that investors will put a greater value on each $ of earnings flowing to the bottom line.
Containers have been a profitable sector, and have attracted investors with a viewpoint that values continued cash flow and dividend-payouts on earnings now (in contrast to the traditional “asset play” mentality that was previously highly prevalent among buyers of shipping shares). The Jefferies report, in buttressing its “BUY” recommendations, said: “Since being listed publicly in January 2021 at $15/share, ZIM’s total cash distributions, including the recent quarterly dividend, amounts to $24.35/share. ZIM intends to distribute 20% of net income as dividends for the first three quarters, followed by an annual dividend totaling 30-50% of annual net income.”
Shares of ZIM were down over 6% on Wednesday as of 3:30 p.m. ET.
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