In the first edition of our Streetwise newsletter, we examine how the realities of earnings season differed from what some listed owners might have hoped. Subscribe at tinyurl.com/twstreetwise
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Hope springs eternal in the hearts of public shipowners. So it is no surprise that management teams and not a few equity analysts might have hoped that the last earnings season of calendar year 2021 would provide a turbo boost to investor attention and share prices.
Such hopes, sadly, appear to have been misplaced.
A Streetwise review in conjunction with investment bank Jefferies shows investors used the three-week period between 31 October and 19 November to move out of shares of both tanker and dry bulk stocks, despite their very different dynamics.
Dry bulk executives got to talk about record third-quarter results during the earnings season. Plus, a strong start to October ensured they could guide to an even stronger fourth quarter in most cases. The downside: rates were plunging as they spoke in November.
Tankers? Somewhat the opposite. The third quarter was woeful, continuing a year-long losing streak. But fourth-quarter bookings started better, feeding the narrative of a looming market recovery.
It didn’t matter. Dry bulk shares sold off an average of 14% during the peak earnings-reporting period, while tanker stocks bled 11%.
But what about trading volumes? Surely earnings season would at least pique investor interest if not share prices immediately?
Well, yes and no. Bulker owners traded an average 945,000 shares per day, up about 5.9% from the average for the preceding 90 days.
But tanker volumes actually slumped 7.7%, and the daily average of 890,000 shares meant their turnover sank below their bulker brethren.
Correlation not causation?
For perspective, the 30-shipowner Jefferies Shipping Index is still up 59% for 2021.
It is just that earnings season was of no help. Why is that?
"Well, it’s pretty clear that all the equities sold off," Jefferies lead shipping analyst Randy Giveans said.
"But at least part of that is due to correlation, not causation. Meaning that it was not what was said in earnings reports and calls that caused the selloff, but external factors that happened to coincide with the reporting."
In Giveans' view, tankers were hurt — after a rally by equities in October — by subsequent Covid-19 outbreaks and negative signals by the Opec+ cartel on committing to production increases.
Meanwhile, dry bulk was undercut not only by falling rates but also by investors’ ability to see lower hire projected in forward freight agreements into the first quarter of 2022.
Dividends got attention
However, dry bulk’s higher trading volumes do show that investors were paying attention, including to the higher dividends being paid out by the likes of Star Bulk Carriers, Eagle Bulk Shipping and Genco Shipping & Trading.
Two companies that either disappointed with new dividend policies, in the case of Diana Shipping, or failed to implement one — that is Safe Bulkers — also underperformed the dry group for the period.
Diana lost 21% during the period and Safe Bulkers shed 23% for the period against the 14% group average.
In the end, most management teams did what they could to spotlight their positives. But investors either did not fully buy in or were distracted by external catalysts.
And speaking of those — they are not over for 2021, even with just four weeks left.
Stocks took a quick hit on the emergence of Omicron, the latest Covid-19 variant, although analysts said there could be different outcomes depending on the operating sector.
