From Strength to Strength

The phenomenal run of shipping strength continues, as containership rates set another all-time record high this week, dry bulk rates are resurging, LNG rates are lifting, and even tankers are starting to show some signs of life!

In my previous blog, I noted how valuations remain low and the remaining skepticism in the sector is very healthy as it proves there is still much more potential. Most of our stocks have appreciated over the past two weeks, but I am still receiving regular pushback, particularly concerning containership investments.

Many of these firms still trade at 30%+ discounts to NAV and for as little as 3x next year’s earnings. A 3x P/E might seem understandable if rates were only getting signed for 60-80 days; however, we have seen a raft of fixtures for 4-5 years over the past month. We have also seen some remarkable asset play in the sector. For instance, Global Ship Lease (GSL) just completed a deal which pays for itself in just 3 years, backed by guaranteed charters. Despite these types of deals, skepticism runs high, and GSL still trades at a tremendous discount to NAV.

The latest Harpex index reading is posted below, setting fresh all-time records as of 25 June. Again, it is important to remember that these are multi-year durations, not just ‘spot’ contracts for 60-80 days. I discuss more of these market conditions in a recent podcast on Seeking Alpha.

Strength in Other Sectors: Dry Bulk & LNG

Although the majority of my public focus has been on the containership story, I am also heavily invested in a handful of dry bulk firms. This story has also been remarkable, particularly in the midsize vessels, which have witnessed a steady strength since February of this year. I recently sat down with Safe Bulkers (SB) CEO Polys Hajioannou to discuss these markets in a recent interview on Value Investor’s Edge. SB is remarkably well positioned in these midsize markets along with another solid midsize firm, Eagle Bulk (EGLE).

There’s so much strength out there that it is easy to forget about the LNG sector as well. These rates have been climbing the past months and time-charter levels are also strengthening. Both Flex LNG (FLNG) and Golar LNG (GLNG) are doing very well here.

Finally, tankers are showing a bit of life after a very brutal 10 month downturn. It is too early to call it a ‘true recovery’ yet, but we are increasing our investments and looking forward to meaningful improvements by Q4.