GSCW chat: Shipping stocks surged — but haven’t peaked

BIO: Giveans is the senior analyst and head of Jefferies’ Energy Maritime Shipping Equity Research Group. He currently covers 30 energy maritime shipping companies that transport crude oil, refined petroleum products, liquefied gas, dry bulk commodities and containers. In both 2019 and 2020, he was named to Institutional Investor’s All-America Research Team. In 2018, he was named an Institutional Investor All-America Research “Rising Star” and was ranked as the top stock picker for shipping in the Thomson Reuters Analyst Awards.

KEY QUOTES FROM GIVEANS:

On the rate effect of landside congestion: “It’s not an issue about supply of ships or supply of containers. It’s about getting [containers] off the ships and off the terminals through truck and rail. The whole distribution network is so systematically congested, and supply chain issues go far beyond shipping and ships. The ships are fine. There’s enough cargo on the water. There’s not enough cargo getting out of the ports. Landside congestion is really the big issue and it can’t be regulated away. Politicians want to think they can do something but it’s really a demand story, so I think it persists throughout 2022 and into 2023. If 100, 300, 500 new ships miraculously appear tomorrow, that’s not going to help anything. That’s just going to add more to the traffic jams and congestion. It’s not going to fix the market or the supply chain issues.”

On buying Zim (NYSE: ZIM) stock after its price quadrupled since IPO: “The IPO price didn’t matter. They raised $225 million in the IPO, 15 million shares at $15 a share. They didn’t care if the IPO price was a dollar. They just wanted a liquid entity for the 100 million shares that were already outstanding. It was all about getting a publicly traded liquid stock and the IPO price didn’t matter much, so you can’t say [it’s too high because] it was $15 at the IPO and went to $11 in the first few days and now it’s $68 [as of Feb. 4]. You can’t look at the IPO price. Secondly, the market has improved phenomenally since then. The balance sheet is the best it has ever been. They have negative net debt. More cash than debt or long-term lease liabilities. They’re going to [report] $6.5 billion-plus EBITDA for last year and maybe again this year. And whatever it is this year, we’re looking at massive cash flow and big dividends coming — and it’s still trading at discounts to its peers.”

On buying Danaos (NYSE: DAC) stock after its massive two-year price surge: “Danaos was $3 a share for a few weeks in February-March 2020 and it’s at $95 [as of Feb. 4] — so it has now gone up 30 times. We were pounding the table before, but it was hard to pound the table when the market cap was just $60 million. Now, the market cap is almost $2 billion and there is a lot more trading liquidity, a lot more volume. When we were pounding the table at $3, $5, $7 a share, it was trading at one times PE [price-earnings ratio]. With the run-up to $95, it’s trading at 2.5-3 times PE. The locked-in cashflow visibility is massive: a $2.8 billion revenue backlog. The market for them has also improved dramatically: Rates have stepped up and also, durations have been extended. Yes, looking at a chart, it looks like, ‘Whoa, I missed it.’ But I’ve heard ‘I missed it’ when it was at $20, $30, $40, $50, $60. I’ve heard that for the last year and a half, and there’s still a lot of upside from here.”

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