Over the past month, I’ve been making the case for investing in maritime shipping stocks as a potential catch-up trade for once the markets continue to push past the COVID-19 hangover. I’ve submitted a public series on Seeking Alpha along with five planned focus reports on various shipping segments. One of these reports covered Global Ship Lease (GSL), a containership firm which I believe has around 60% upside from current prices.
COVID-19 obviously had an impact on global trade volumes, but the containership liner companies reacted immediately to control their supply and rates have remained robust. The Harper Peterson “Harpex” index crashed from February to May, but has since led a massive recovery. As of last week, we’re already back above both 1-year and 2-year averages.
This is important because this index represents the quotes tonnage providers are receiving for their ships on average 1-year time-charters. The Harpex ranges from 700 TEU to 8.5k TEU and is incredibly important for firms with higher degree of exposure to these size ranges. Relevant firms include Costamare (CMRE), Danaos Corp (DAC), Global Ship Lease (GSL), and Navios Maritime Containers (NMCI). With the rates rapidly recovering, we might expect equities to also show some strength? Nope. Check out the YTD performance of the peer group below as per Yahoo Finance:
GSL has provided the best performance, down by ‘only’ 37%, whereas NMCI has performed the worst, down by 61% YTD. These firms undoubtedly understand how ridiculously cheap their equity has become. Danaos Corp initiated a $10M repurchase in early-August and NMCI announced a $6M repurchase at the end of July. Interestingly, judging by price reaction (purple line above is DAC), the market massively rallied on DAC, but has ignored NMCI. Perhaps this is because NMCI previously had a $10M repurchase program started in March 2019, but never bought any shares?
Opportunity for Investors
Hopefully both DAC and NMCI will take advantage of these enormous share discounts and retire their equity. This is also an excellent opportunity for equity investors to acquire stakes in these firms at near all-time record lows, even as market fundamentals are improving. If the Harpex isn’t good enough evidence, they check out this latest news report by “The Loadstar,” which quotes a London broker:
“The top carriers are adopting a ‘whatever it takes’ attitude to chartering at the moment, and they really don’t seem to care what they pay as long as they fix the ship.”
Dislocations like this are excellent opportunities to invest. I’ve been recently reviewing Global Ship Lease (GSL) as one of our top five picks. I am also long NMCI, but I would like to see evidence of repurchases to better prove insider alignment.