Cold sweats and Hot flashes
by BarryParker
March 14, 2009 12:58 PM

There has been a thaw in the air outside; the bone chilling cold of January and February has dissipated, so Spring is around the corner. The temperature of shipping companies is less clear. The tankers are getting some respect from investors A group of 13 listed tanker companies shows an average Price/Earnings ratio of 6.6x (based on estimated 2009 earnings) and a Price/ Cash Flow ratio of 2.8x, according to a recent report from the researchers at Dahlman Rose (DR). The same report shows a dozen dry bulk issues, averaging a dismal ratio of 2.6x P/E and1.6x P/CF. In the container space, which entails massive newbuilding orderbooks, delaying vessel deliveries for periods approaching a year seems to be the name of the game. In theory, there is more time for trade to recover and for finance options to present themselves.

The relative yields, indicative of the payouts to investors, are 19.2% for the tankers, versus 14.7% for the dry issues. For containers, I don't have a good data source. Many of the drybulk listings have suspended their dividends, even though payouts were part of the allure in better times. Of course, dividends cuts are rampant across the markets, including mainstream financial and industrial stocks.

In a conversation with one investor, who buys shipping stocks for both his clients and his own account, he told me that he would not own stocks that were not featuring a payout. Upon further discussion, he suggested that he regarded the dividend as a thermometer of the business conditions- and that no distribution was putting up something of a red flag.

The classic shipping story (well, circa the 1950s to date, not THOSE Homeric and similarly timed classics) has been about asset plays, rather than steady cash returns. This poses a bit of a conundrum. Before the era of the listed companies, money could easily remain in shipping businesses because they were family controlled and no investors, or analysts (or bloggers- for that matter) closely monitoring the shipping companies' asset sales. The big money was always made on asset plays, with various pundits joking about Greeks selling to Norwegians, and Norwegians selling to Danes, etc etc.

At this juncture, many of the company managements have peppered their conference call scripts with words like "…opportunities…" and the C-word, "consolidation" is having a resurgence if you listen to the just completed round of 4Q 2008 earnings calls. "Cash flow from operations" has always been used to fund capital expenditures at shipping companies- CFOs on the conference calls have mentioned that this trend will continue. I have no crystal ball on the world financial crisis, but it's clear to me that ship finance is still available where a company has had a relationship and a good record, with a particular bank. Mega syndicate deals, on the other hand, are a thing of the past for conventional shipping assets, and will be until thaw turns to spring turns to summer.

What all this tells me is that the listed companies (many of whom grew up in the private tradition) will be making their money in the classical way- buying cheap assets and flipping them out as the market rises. My investor friend may not be a buyer, and probably a different breed of stock pickers may fill the void. I am not sure about the Greeks, Norwegians and Danes, and I will stay clear of jokes. But this time we can add Chinese and other new players to what will be a very bubbly mix.


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Posted by:  dlykins@cinci.rr.com
March 18, 2009 12:49 AM

does anyone know where I can get 5 years of history on the BDI?

i want the raw data, not a graph...as I want to graph it myself in Excel.

on-line here I can just get 1 year history.

 

Posted by:  Globetrotter
March 18, 2009 10:38 AM

If you are a Bloomberg subscriber you should be able to access it on the terminal.

Posted by:  Globetrotter
March 18, 2009 10:47 AM

Barry you are right that finance still exists for the right deals. Most probbably bankers will be a bit more conservative, lending a smaller percentage of the total acquisition price. If in the past, 60-70% financing was in line, now we may see a smaller percentage. With today's asaset prices being so low, banks that may be willing to finance 50% or so, may be taking a smaller risk than before.

it will be interesting to see how this pans out. Next week, at the Capital Link Shipping Conference there is a banking panel and we will see how baners are reacting to tday's crisis and what may be on the road ahead.

In any case, bank financing even if it is available, there will be less of it and at a higher cost, reflecting tcurrent market conditions. So, listed companies, with a lifeline to the capital markets may hacve an edge, as they may be raising capital either to pay down debt or to take advantage of the acquisition opportunities. But there again, we need to see how it will pan out, as overall, valuations are low.



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