I follow shipping. But mostly, tankers and dry bulk shipping.I have not followed container shipping as closely. At least, not as seriously, until the last few months. I was aware of the container shipping's tiered structure. So, this tiered structure is two-fold. The Top 10-12 container companies control almost all the container shipping on the major routes, and among that Top 12 are further groupings into Alliances (similar to airlines). The Top 10 players include companies such as Maersk, CMA CGM, Mediterranean Shipping Company (MSC), Cosco, Evergreen, etc.The next tier is container shipping companies with reasonable sized fleets (40 - 100 vessels), who basically rent their vessels to those major players. So, these are the Atlas (ATCO), Costamare (CMRE), SFL corp (SFL), Danaos Corp (DAC), Global Ship Lease (GSL). Each company will typically rent or lease their vessels to multiple players among the Top 10. The first three names on the list i.e. ATCO, CMRE and SFL have longer term relationships with the Top 10 players, and this translates to longer term charters. Longer term, stable revenue is obviously a positive. That is, until Covid and post-Covid. The container shipping companies that stand to benefit, besides the Top 10 players obviously, are any of the smaller players, but with an added caveat. The smaller companies need to have some/many vessels rolling off charters so they can take advantage one of two ways.1. The smaller company can sell the charter-free vessel to a Top 10 player at a significant mark-up e.g. CPLP2. Fix their charter-free vessel on 1-year, 2-year, 3-year charters at 2X - 4X the previous rate. With the criteria of container-company-with-vessels-rolling-off-charters, two names, publicly-traded, that come to mind are Global Ship Lease (GSL) and Danaos Corp (DAC). I nibbled on GSL today.Here's why1. Revenue growth: At the start of 2021, GSL had a fleet of 43 vessels. Three acquisition deals during the first half of 2021 have increased the fleet to 66 vessels. GSL has also benefited from organic revenue growth via vessels rolling off charters, and renewed at higher charter rates. And will further benefit from additional vessels rolling off charters, including some of their 2021 fleet additions.2. Capital structure:At the start of the 2021, GSL had bank debt, two flavors of senior Notes, and two flavors of preferred shares. During Q1 2021, one flavor of senior Notes (2022 Senior Notes) got paid off, or converted to bank debt. Also, one flavor of preferred shares got converted to common equity. GSL have an ATM-offering type structure for both their remaining Senior Notes and their preferred shares. GSL have periodically been tapping these resources. But, the flip side to this, GSL have grown their vessel count by 50%, with many of the vessels offering better-than-average revenue streams3. Credit rating:Last week, credit rating agency Moody's upgraded GSL's credit rating from B2 to B1. That was the second credit rating upgrade in 2021. GSL have managed to arrange financing for 20-yo vessels (first acquisition of 2021 was seven older vessels from Maersk, with run-off charters). This occurred prior to the rating upgrade.I have seen a GSL Net Asset Value (NAV) suggested on SeekingAlpha that the company trades around 55% of book. I'm working on my own estimate. But this is tricky, given the fleet and age mix with a mostly 2nd hand fleet, and existing price volatility.
I got burned by Sea Containers some years ago. Same thesis, disastrous results. Never again.
I got burned by Sea Containers some years ago. Same thesis, disastrous results. Never again. I understand.But prior to the last 8 - 10 months, the container shipping sector has been a wretched sector for all but a select few (Maersk, MSC,, etc.) for at least a decade. About 4 years ago, a Top 10 player, Hanjin Shipping, crumbled and that had a ripple effect, and impacted several lower tier players. Likewise, Hyundai Merchant Marine (HMM) ran into issues that impacted several of its lower tier vessel partners.The major issue in the past has been vessel overcapacity. That translated to downward pressure on rates. That has changed in 2021. There is very little idle capacity. -- In the OP, I mentioned the renewal rates if a company has vessels rolling off charter.This is GSL's Q1 2021 presentationhttps://www.globalshiplease.com/static-files/a7d0eedd-0dff-4...Slide 6 (Fleet charter status)Newyorker Charter rate $8K => $20.7K daily Athina Charter rate $9K => $21.5K dailyIan H Charter rate $14.5K => $32.5K dailyGSL Christen Charter rate $14.5K => $35KI will admit, not all the charter renewals or new charters doubled, or greater. But the point was to illustrate that the rate doubling was not an isolated event. Consider, in all the cases, the involved vessels are fairly old (youngest being an 18-yo vessel). At a different point in time, some of those 20-yo vessels would be scrapyard candidates. This year, in this market environment, those vessels are netting their owners wonderful cashflows.
In the OP, I made this comment--I have seen a GSL Net Asset Value (NAV) suggested on SeekingAlpha that the company trades around 55% of book. I'm working on my own estimate. But this is tricky, given the fleet and age mix with a mostly 2nd hand fleet, and existing price volatility. Ok, some progress.I took a look at GSL's fleet and data from a few sources, and came up with a plan.In the shipping sector, there is a concept called 'modern vessel', and this typically means a vessel less than 15-years-old. I then separated GSL's fleet into two categories1. Modern - 2006-build and newer2. Older vessels 2005-build and olderThen, for vessels in Group 1, I did a best estimate with data from brokers, recent transactions or newbuild price adjustments. Group 2 vessel was calculated as scrap + some declining annual balance to year 20, then vessels beyond 20-yo, it was just just individual vessel scrap ($450 * LDT tonnage)Group 1: 18 vessels $930.00MGroup 2: 32 vessels $456.53M Total 50 vessels* $1386.53M* GSL completed two fleet transactions in June 2021 adding 16 vessels. The payment details - cash, new preferred share issuance & financing is not entirely clear at this time. So, I am excluding those vessels from the valuation at this timeDebt was around $730M at end of Q1 and cash was around $160M Bim! Bang! Ka-ching! $20.71/shI should point out I do think my numbers are fairly conservative. i. At least in the near term of 12-18 months, those older (Group 2) vessels can earn more in the current market environment than they normally would earn, and thus put upward pressure on their valuation. ii. Also, ship-breakers in Bangladesh and Pakistan are currently paying a lot more than $450/LDT.In 2021, GSL started a dividend for its common shares. Don't guarantee its long term viability. But, in the near term, a payout can offer support to the price.
GSL announced their Q2 2021 results about 10 days ago.https://www.globalshiplease.com/news-releases/news-release-d...There was more color provided on the developments in the fleet, plus financing details.In addition, GSL sold one of its older vessels, La Tour, and booked a tidy gain of $7.8M from $16.5M in proceeds.More clarity was provided on the 2nd acquisition of vessels in June 2021. That allowed me to refresh my NAV numbers. Fleet value bumps up to $1714.05MDebt: $835.4MCash (including restricted cash): $160.2MPreferred shares: $60.8MMy NAV number bumps up to $26.93/shI am assuming the debt includes the financing on the new vessels (around $140M). Hard to tell, the vessels didn't deliver till sometime in July 2021.If the debt was not included, the NAV number is $23.09/sh.The conservative nature of my valuation shows in the La Tour transaction. I had the vessel valued at $6.78M.One other point, part of the original investment thesis- Container vessel owners with the ability to benefit with vessels on expiring charters. One of the vessels, renamed GSL Eleftheria, that was part of the most recent acquisition is on a charter rate of $12k daily. Starting in Sept 2021, the new charter rate ... $37975 daily!!! for multiple years. Still a few more GSL vessels with expiring rates in 2021. Maybe the rates in each case doesn't triple. But I do think many will, at least, double.
Nice call on GSL, HohumYNWA. Up 30%+ since your posting on Jul 28.repurchase news:https://finance.yahoo.com/news/global-ship-lease-announces-r...... bought GSL on Jul 28.
Thanks. Unfortunately, I only opted for a small position.But, the share buyback is additional good news for the GSL valuation. I still have not factored in the last fleet additions - the 4 refrigeration-type (or "Reefer") vessels.My initial sense is that it will have some positive impact. But, not as much as the second acquisition of vessels (which probably added $2/sh - $3/sh of value)
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