Global shipping industry is turning around on the back of recovery in economic recession. GE Shipping is expected to benefit from this turnaround making it a stock to buy.
THE shipping industry has witnessed a strong improvement in its operating environment over the past few weeks, as in the key tanker segment, which consists of transporting crude and allied petroleum products, there are signs of a pick up in global demand. There has also been a corresponding improvement in spot shipping freight rates.
For instance, players such as GE Shipping, the second largest Indian player in this sector, is expected to benefit, thanks to a recent report of the IEA that said that global oil demand is forecast to improve by 1.7% year on year in calendar year 2010. Strong demand conditions for oil and allied products have resulted in tanker spot segment freight rates, such as VLCC at $48, 800 per day levels currently, a sharp jump from the third quarter of FY10. Indian players utilise a majority of their fleet capacity in the tanker segment.
FLEET SIZE:
At the end of January 2010, GE Shipping fleet capacity consisted of 38 vessels with a total capacity of nearly 2.84 million DWT (dead weight tonnes) and it had utilised a large majority for tanker segment. However, there was a reduction of nearly 12.9% in its total shipping capacity in DWT terms as compared to its year ended March 2007.Asset prices of ships had globally peaked in mid-2008 and have fallen since then, and GE Shipping utilised this opportunity to improve its cash flows. In addition, there was an extremely challenging environment for global shipping industry during April and December 2009.
In the companys offshore division, its owned fleet at the end of the third quarter of FY10, included a jack-up rig, five platform supply vessels (PSV), one multi-purpose supply vessel, coupled with eight anchor handling tug supply vessels. This was substantially higher than just two offshore platform support vessels at the end of FY 07. The company had invested on a consolidated basis Rs 5,059.7 crore between March 2007 and March 2009, while its operating cash flow during this period stood at Rs 4,877.7 crore. Its leverage ratio was just 0.6 at the end of the previous financial year and lower than two years earlier.
CAPEX PLANS:
GE Shipping plans to incur a capex of $437 million (nearly Rs 2,020 crore) in its shipping business over the next 18 months. In its offshore division, the company has a capex of $ 406 million (nearly Rs 1,880 crore) for the purchase of 10 more assets, and these would be delivered over the next 15 months. However, analysts fear that such an aggressive capex plan over the next 24 months could lead to a rise in the companys leverage ratio, going forward.
FINANCIAL PERFORMANCE:
GE Shippings standalone operating profit margin fell 630 basis points yoy to 35% in third quarter of FY 10, at a time when its net sales also declined 33.5% yoy to Rs 466.9 crore. The operating environment was extremely difficult, with average spot freight rates in VLCC that fell 62.3 % yoy. On a consolidated basis too, which includes its offshore division, GE Shippings operating profit margin fell 1,070 basis points yoy to 28.2% in third quarter. During the first nine months of FY 10, its offshore business contributed 21.6% of total segment sales and shipping the rest.
STOCK VALUATIONS:
GE Shipping at Rs 261.5 per share, trades at 7.3 times on a trailing four-quarter basis. Rival, Shipping Corp trades at 14 times and Mercator Lines at 6.2 times. Investors could consider buying stocks of GE Shipping for long term.
Reference & excerpts from: ET Investors Guide.
Showing posts with label Shipping Stocks. Show all posts
Showing posts with label Shipping Stocks. Show all posts
ABG Shipyard - Stock Analysis
Firstcall India equity research maintains `Buy stocks` on ABG Shipyard with a price target of Rs 242.
The brokerage house pointed out at the current market price of around Rs 200, the stock is trading at a P/Ex of 5.68 times for FY10E and 5.12 times for FY11E.
The EPS of the stock is expected to be at Rs 36.98 and Rs 40.98 for FY10E and FY11E respectively.
On the basis of price to book value, the stock trades at 1.04 times and 0.87 times for FY10E and FY11E respectively.
The net sales and PAT of the company is expected to grow at a CAGR of 23% and 9% respectively over FY08 to FY11E.
The present macro scenario is bleak with erosion in demand for ship yards following a cyclical downturn in the shipping industry.
However, ABG has not faced any cancellations or delays till date. In addition, since a
substantial part of ABG`s order backlog caters to the offshore industry, which has not seen such a steep fall as in case of shipping, it remains relatively insulated.
They recommend to "buy stocks" with a target price of Rs 242 for medium to long term.
The brokerage house pointed out at the current market price of around Rs 200, the stock is trading at a P/Ex of 5.68 times for FY10E and 5.12 times for FY11E.
The EPS of the stock is expected to be at Rs 36.98 and Rs 40.98 for FY10E and FY11E respectively.
On the basis of price to book value, the stock trades at 1.04 times and 0.87 times for FY10E and FY11E respectively.
The net sales and PAT of the company is expected to grow at a CAGR of 23% and 9% respectively over FY08 to FY11E.
The present macro scenario is bleak with erosion in demand for ship yards following a cyclical downturn in the shipping industry.
However, ABG has not faced any cancellations or delays till date. In addition, since a
substantial part of ABG`s order backlog caters to the offshore industry, which has not seen such a steep fall as in case of shipping, it remains relatively insulated.
They recommend to "buy stocks" with a target price of Rs 242 for medium to long term.
Top 10 Stocks From Shipping & Logistics Sector
The growth of shipping and logistics sector depends on growth of the overall economy. In fact, this sector is said to be a proxy of the economy . As the economy revives there will be a rise in demand resulting in greater movement of goods, which would benefit the overall industry. According to experts the industry is expected to grow at 12%. Here is a list of top 10 stocks from Shipping & logistics sector published in Economic Times.LARGE CAP STOCKS
Recommended By: Prabhudas Lilladher and KR Choksey Shares and Securities
MUNDRA PORT & SEZ
CMP:Rs 558
The port revenue of Mundra Port and Special Economic Zone (MPSEZ) grew by 17.4%. Mundra port clocked in volumes of 9.5m tonne for the quarter and 35.7m tones for FY09, representing growth of 12% and 24%, respectively. Growth in volumes was dominated by bulk cargo, which grew by 14.6% for the quarter.
CONTAINER CORP OF INDIA
CMP:Rs 1,051
The company exhibited reasonable performance in FY09 amidst the slowdown. The companys management is anticipating a recovery in the business environment, which is evident from its guidance of 10-12 % volume growth for FY10. We believe that the managements target for volume growth can be achieved.
MID CAP STOCKSRecommended By: Karvy Stock Broking and SKP Securities
GREAT EASTERN SHIPPING
CMP:Rs 255
It reported revenue growth of 24% YoY to Rs 560 crore in the fourth quarter of FY09 due to decline in freight rates in dry bulk segment and 18% decline in operating days. The revenue was in line with our expectation of Rs 550 crore. Also, the consolidated revenue increased by 21.1% to Rs 3,791 cr during the for FY09.
GREAT OFFSHORE
CMP:Rs 422
It is the largest offshore oilfield service provider to upstream oil and gas companies to carry out offshore exploration and production activities . It recently forayed in to port management and single point mooring operations by acquiring 100% equity stake in KEI-RSOS Maritime and Rajamahendri Shipp. & Oilfield Services for Rs 1,600 crore.
SMALL CAP STOCKS
Recommended By: Emkay Global Financial Services
SEAMEC
CMP:Rs 172
During the beginning of the last quarter the company was sitting on committed contracts worth $40 million. As per management guidance all of its vessels will be fully available for operation in calendar year 2009. Consequently on expected full utilisation of fleet and currency appreciation we have upgraded the earnings estimates.
GARWARE OFFSHORE SERVICES
CMP:Rs 159
Revenues for the quarter increased by 88.9% to Rs 44 crore primarily on account of re-pricing of assets at higher day rates and addition of three new vessels PSV Mana & Makalu and AHTSV Poorna. Operating profit for the quarter increased by 62.9%. Also, the operating profit for the quarter increased by 62.9% y-o-y to Rs 23 crore.
Source: Economic Times
Advt: Learn about Domestic Shipping.
Good Mid Cap Stock From Shipping Business - Mercator Lines Ltd
Mercator Lines, as part of a strategy to de-risk the cyclical nature of its core shipping business, entered the offshore drilling business with the delivery of a Rs 1,000-crore jack-up rig. The rig was immediately deployed on a three-year contract with ONGC, through GE Shipping.
It is common practice for new players such as Mercator Lines, which don't have the required technical experience, to route their contracts through experienced intermediaries. The rig has been chartered at a daily rate of $92,700 plus profit-sharing. It can work in 350 feet water depth and drill up to 30,000 feet. Being a new and technically superior rig, with 'high pressure, high temperature' capability, the rig can command a premium over other rigs.Mercator has also paid an additional premium to the Singapore-based shipyard for pre-poning the delivery of this rig by three weeks.
The company is likely to book around a fortnight's worth of revenues or nearly Rs 7 crore in FY09, which will be very small in its consolidated turnover of Rs 2,000 crore. However, in FY10, the rig would single-handedly contribute nearly 7% of the company's revenues.
Mercator's consolidated revenues grew a healthy 67% y-o-y to Rs 1,673.1 crore in the first nine months of FY09, as its long-term contracts helped to minimize the impact of a sharp fall in spot shipping freight rates. Its operating profit margin also improved 460 basis points y-o-y to 44.1% during this period.
Mercator has diversified into other non-core businesses such as the supply of dredgers and coal mining in Indonesia. These non-core activities are expected to represent around 10% of the topline in FY09, which would shoot up to 20% next year.
Market Cap 1,066.68
EPS (TTM) 7.67
P/E 5.89
P/C 3.28
* Book Value 45.91
* Price/Book 0.98
Div(%) 110.00
Div Yield(%) 2.43
Market Lot 1.00
Face Value 1.00
Industry P/E 5.19
This stock is held by many good mutual funds buying mid cap stocks in their portfolio.
It looks like to be a good stock to buy at dips. Investors should buy stocks with 2-3 years investment period for good returns.
It is common practice for new players such as Mercator Lines, which don't have the required technical experience, to route their contracts through experienced intermediaries. The rig has been chartered at a daily rate of $92,700 plus profit-sharing. It can work in 350 feet water depth and drill up to 30,000 feet. Being a new and technically superior rig, with 'high pressure, high temperature' capability, the rig can command a premium over other rigs.Mercator has also paid an additional premium to the Singapore-based shipyard for pre-poning the delivery of this rig by three weeks.
The company is likely to book around a fortnight's worth of revenues or nearly Rs 7 crore in FY09, which will be very small in its consolidated turnover of Rs 2,000 crore. However, in FY10, the rig would single-handedly contribute nearly 7% of the company's revenues.
Mercator's consolidated revenues grew a healthy 67% y-o-y to Rs 1,673.1 crore in the first nine months of FY09, as its long-term contracts helped to minimize the impact of a sharp fall in spot shipping freight rates. Its operating profit margin also improved 460 basis points y-o-y to 44.1% during this period.
Mercator has diversified into other non-core businesses such as the supply of dredgers and coal mining in Indonesia. These non-core activities are expected to represent around 10% of the topline in FY09, which would shoot up to 20% next year.
Market Cap 1,066.68
EPS (TTM) 7.67
P/E 5.89
P/C 3.28
* Book Value 45.91
* Price/Book 0.98
Div(%) 110.00
Div Yield(%) 2.43
Market Lot 1.00
Face Value 1.00
Industry P/E 5.19
This stock is held by many good mutual funds buying mid cap stocks in their portfolio.
It looks like to be a good stock to buy at dips. Investors should buy stocks with 2-3 years investment period for good returns.
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