Grow the fleet by opportunistic acquisitions in distressed sectors
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Famous quotes for sound investment decisions ...
Warren Buffet
“Valuing a business is part art and part science.“ “Be fearful when others are greedy. Be greedy when others are fearful.” Atlas Maritime
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... Early Adopted by Shipping CEOs!
Cpt. Leon C. Lemos
The Traditional Greek ship-owners did exactly that … Studied the fundamentals (science part), supply/demand, orderbook, cargo growth Trusted their gut feeling (art part) Aiming to buy low and sell high ...
… and were proven right, turning themselves into shrewd asset players! Atlas Maritime
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Timely Asset S&P and Employment History
Source: Clarkson Research Services Ltd
We try to do the same thing but clearly, you cannot always be right “You only have to do a very few things right in your life so long as you don't do too many things wrong” (1) Need to have the staying power to survive the downturn (1) W. Buffet Atlas Maritime
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In Theaters Now: The new Shipping Movie ...
The New(buildings), the Eco (story) and the Ugly (market)
Public companies need to buy but owners don’t need to sell
Therefore public companies will always turn to the shipyards because shipyards always need to sell …
And they want a fitting story (eco) to justify their N/B ordering spree … but
Eco advantage not being that relevant anymore with the price of oil at $30 …
While oversupply being a very real and overly relevant issue!
There is only one rule in shipping: buy at the bottom of the market. The smart money violated that rule.
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1980’s type crisis: A trip down memory lane 2015 turned out to be the year of highly contrasting performances among the wet and dry sectors Fundamentals clearly worked on opposite directions benefitting tankers while hard-hitting bulkers
Largest earnings differential on record with BDI hitting an all-time low (before plummeting further in ‘16) Excellent entry point to start buying dry bulk Major shakeup in ownership. Old names will scale down or disappear and new names will emerge
Nobody can time the exact bottom; unique opportunity to buy dry bulk at the rock bottom of the cycle Must buy gradually and over the next year and not an entire fleet at one go Sellers prone to occasional exuberance, anxiety and herd behaviour in a world of uncertainty; An even better time to buy at a much lower price. And being private allows more flexibility Public companies can only buy in their specific focus sector, while private companies may opt to diversify Private companies don’t need to be invested; sometimes the best investment is not to be invested
Private companies can reduce their exposure significantly depending on where they are in the cycle … … while public companies will always need to demonstrate q-o-q growth!
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Cheap Oil: Blessing in disguise China Crude Oil Imports 0.16 6.72
7.0 6.0 5.0
4.81 5.10
4.0
5.43
5.65
0.1
3.0 2.0
0.12
6.18 9%
6%
9%
7%
0.08 0.06 0.04
4%
1.0
0.14 Year Over Year Growth
Annual Crude Oil Imports (MB/D)
8.0
0.02
0.0
0 2010
2011
2012
2013
2014
2015
The extra supply of oil and the prevailing oil price environment are a blessing! A much needed shot in the arm of the word economy, adds two trillion in the world economy Raises the purchasing power of consumers in Europe, US as well as in China, Japan and India Boosting 75% of the world economy Low oil prices positive for tankers Strong demand for oil raising tonnage requirements Strategic stockpiling Floating storage due to contango and in-land capacity running low Arbitrage opportunities (lift of ban on U.S exports) Brent cheaper than WTI will increase utilization. Tanker market recovery has legs! Source: IEA, Bloomberg and Management’s Analysis
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Current T/C Rates Suggest Significant Lag In Values …
Source: Clarkson Research & Management’s Analysis
Correlation between 3yr TC rates and secondhand values is very high with a high degree of confidence; Statistical analysis shows that values should be $10-13mn higher (depending on age bracket) Current rates suggesting a further 20%-40% near-term appreciation potential from current quoted levels: A 5yr old Aframax is quoted at c. $46mn when current 3yr T/C rate of $26K per day would support $56mn; A 10yr old Aframax is quoted at $31mn when the aforementioned 3yr T/C rate would suggest a value of $44mn.
Older tonnage is trading at a level as incredibly low as 4 x EBITDA! A 2003-built Aframax, currently valued at $24mn (VesselsValue) was reported fixed for 3yrs at $25.5K p.d. Annualized EBITDA of $6.2mn / Vessel projected to return c. $19mn (net of OpEx) in 3 years with a $5mn scrap Asset fully written down by end of TC / Significant upside with further 5yrs trading life depending on market!
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... Why then is there such a mismatch? A less volatile / more sustainable freight environment is needed in order to build confidence!
Newbuild prices continue to slide making secondhand premium hard to justify
Wide Bid/Ask Spread in both T/C and S&P market
General lack of finance / liquidity
More Sellers than Buyers shaking confidence by giving the wrong signal to market observers
Public market volatility / Shipping stocks underperformance
Distress in other sectors forcing tanker sales despite firm earnings to free-up liquidity
No offshore conversion interest therefore values on older tonnage have not firmed up as much
Low scrap prices putting pressure on older age brackets
Negative sentiment on global economy
Uncertainty over sustainability of tanker rally
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Concluding Remarks: A peak through our spyglass “In the business world, the rearview mirror is always clearer than the windshield”, Warren Buffet
Dry bulk is a screaming buy; one of the best entry points in the cycle in the last 30 years … … but be prepared to sustain a prolonged period of poor freight market conditions and have: Plenty of cash reserves Low leverage
Tanker fundamentals are still very good; enjoy the cash flow and dividends! Tanker values greatly discounted/dislocation in values Based on CFs and T/C rates values should be $10 million higher Asset values near mid-cycle levels but CFs are healthy and EBITDA multiples (4x) are overly attractive
Many Public companies were given other people’s money on the condition that they had to invest it … They over ordered and ruined the market Now many dry companies will file for bankruptcy This will increase the supply of vessels for sale even further
Need to be contrarian and invest when everybody is running for the exits.
Isaac sowed seeds into the land during a drought! Great fortunes are seeded and vested during a downturn and harvested during an upturn!
