Shipping is about to close the books on the year that was 2021, and the numbers presented for the fourth quarter in the coming earnings season are likely to tell quite different stories depending on the operating sector.
Maybe not quite The Good, the Bad and the Ugly, but something along those lines.
Streetwise caught up with Jefferies analyst Randy Giveans, who covers a broad range of 30 US-listed shipowners across these segments, for a preview of the earnings reports to unfold over February and into March.
A version of this story appeared in Joe Brady's Streetwise newsletter on ship finance. Sign up at tinyurl.com/twstreetwise.
What is he looking for in the three biggest operating sectors, and which are the individual companies he is most eager to hear from over the period?
The last months of 2021 were still a good time to own a container ship or a bulker, and Giveans expects earnings season to reflect that.
“It’s a very good time for the container guys, whether it’s the lessors like Danaos, Global Ship Lease, Atlas, Capital Product Partners or liner operator Zim,” he said.
“The numbers are going to be bonkers. We expect the fourth quarter to be better than the third. We’ll be looking at guidances for full-year 2022, but we expect the outlook to be very good.”
Some of that guidance has surfaced already, with Danaos on 20 January announcing multi-year charters on 11 vessels slated to fetch $870m, bringing its revenue backlog to $2.8bn.
With that update, Jefferies’ main focus will be on new information from Zim, the liner giant that went public in New York just over one year ago.
“Zim is certainly the focus stock for containers,” Giveans said. “We don’t have the visibility or transparency we do with Danaos. Their earnings call in early March will certainly be the most dynamic and highly anticipated in a very long time, just because there are so many variables.”
One is the size of Zim’s annual dividend declaration, which the analyst said could range between $8 and $15.
“My guess is $10 to $12,” he said. “I’d be surprised if it’s below that. I wouldn’t be surprised if it’s above that.”
Bulker brethren
Also joining the party will be dry bulk owners, even though by the fourth quarter the market came off highs seen earlier in 2021.
Jefferies already has trimmed fourth-quarter earnings estimates because of that drop, but Giveans still expects good numbers from the peer group.
He will also be looking hard at any guidances on booking for the current quarter, which he expects to be choppy but nonetheless profit-making.
“Cape rates are going to be volatile for January and February, but I’m very confident this quarter is going to be the bottom for 2022. Everything is saying rates will improve. It’s all about how transient the China impact is, along with weather delays,” Giveans said.
For individual names, he finds it hard to choose between Star Bulk, Genco Shipping & Trading and Eagle Bulk Shipping, all of which are expected to dole out substantial dividends.
Genco may stand out because it is the first distribution to be paid out under its new “high payout” model, but Giveans cautions not to expect too much, as the New York shipowner has signalled it would aggressively pay down debt in the quarter.
“Pretty much all the tanker companies, crude and clean products, lost money in the quarter. The big question will be current guidance, but it’s probably going to be just as bad,” Giveans said.
In many years, tanker owners would be champing at the bit to talk about the winter rates rally that began in the fourth quarter. Not this year. It was a tough end to 2021 and an equally bad start to 2022.
Giveans’ counterpart at Evercore ISI, Jonathan Chappell, has headlined the tanker earnings season thus: “Move along, nothing to see here.”
Still, Jefferies thinks that any further cash burn by the peer group will be offset by evidence of rising vessel valuations in the private market, lending support to net asset values.
Most interesting to Giveans are International Seaways on the crude side — “anything around asset sales, shares buy-backs and their two jointly owned” floating storage and offloading units — and Scorpio Tankers, which could shed light on the quarter’s cash burn and any stock buy-back plans.
More ship finance news
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- In a broader stock market turning ever more volatile on inflation and macro worries, US-listed shipping stocks outperformed last week, with Scorpio taking the lead after selling off its LR1 fleet. Click here to read the story.
- Altered measurements of the cruise industry’s 2020 greenhouse gas output had placed several signatories of the Poseidon Principles, a framework for reflecting decarbonisation goals in ship finance, above their benchmarks. But the effort’s backers highlighted the progress that has been made. Click here to read the story.
