We have enjoyed a phenomenal run with shipping investments during the past 6 months, but there has been some significant volatility along the way. Last week was yet another reminder as a few high-profile names in dry bulk and containers shaved off as much as 20% within a few days.
Those who have either taken prudent profits on the way up or who have sat mostly on the sidelines now have another clear buying opportunity into selective names.
Containerships appear incredibly attractive, especially as the Harpex Index is now just 2 points off all-time record highs as of Friday, 14 May. This strength is particularly notable because it is not just a ‘spot’ reading for a single voyage: these rates are quoted for 1-year charters and in many cases, we are seeing charters at 2-3 or even 4+ years.
Valuations Still Very Low
The remarkable part of this market is that despite the strong surge in rates and long-duration charters getting signed, most of the stocks still trade at very low valuations. For example, the average containership stock trades at just 60% adj. NAV. Danaos Corp (DAC) as one example, trades at roughly the same level as its stake in Zim Integrated (ZIM) plus 2021-2022 projected earnings per share.
There is a remarkable amount of skepticism in this sector, likely due to investors’ poor experiences with the more volatile tanker sector in the past few years.
The difference in this sector is that cash flows are getting locked in for multiple years, so even if rates are weaker in the coming quarters, many of these firms have already locked-in significant free cash flows for 2022 and even into 2023.
I was a buyer last week on average and although most investors don’t like volatility in the markets, I welcome it!