Shares of Israeli liner company Zim have not only recovered fully from disastrous early trading following January’s initial public offering, but have now gained more than 30%.

After pricing at $15 on 28 January, Zim plunged to $11.50 on its first trading day, shedding more than $400m in equity value in the process. It was what financiers term a “busted” deal or IPO.

But that was not the end of the story.

Zim gradually climbed back above the $15 deal price by Monday, and it has been adding strength every day this week.

The surge continued on Friday with a 7.7% gain to $20.12, on the back of news that Zim has agreed with containership lessor Seaspan Corp on 12-year charters for 10 dual-fuel newbuildings built in South Korea.

So why did Zim stumble so badly from the gate, only to recover and gain its stride?

Equity analysts have yet to weigh in on the stock as they have been restricted by US securities regulations due to a “quiet period” following the IPO.

But Value Investor's Edge lead researcher J Mintzmyer has shared with his research group some thoughts on what went wrong with the IPO, and why Zim is faring so much better now.

Mintzmyer termed the factors “a few key reasons why Zim is so cheap beyond the fact that US investors seem to loathe anything shipping-related”.

It should be noted that Mintzmyer takes investment positions on stocks and is currently long shares of Zim.

One problem, he argues, is that Zim has not had a chance to put its best foot forward.

While its third-quarter earnings were part of the IPO prospectus, the real rally in rates for the containership sector will be reflected in fourth-quarter earnings, which it has not reported yet.

Neither the company nor equity analysts for the banks involved in the deal have been able to promote the owner since the IPO because of the mandated quiet period.

Second is the issue of timing. It went public on 28 January at the height of the so-called GameStop panic in US equity markets, as hedge funds holding short positions in stocks came under severe pressure from amateur retail investors.

Several hedge funds are believed to have bailed from the Zim investor book at the 28 January pricing, Mintzmyer indicates.

Also as to timing, major competitors Maersk and Hapag-Lloyd reported results or guidances the previous week that were not as bullish as some apparently had hoped.

A third argument, and a strange one for a shipping IPO, is that Zim did not really need the money.

Rather, it was setting the stage for the eventual exit from the stock by major investors such as Deutsche Bank and containership lessor Danaos.

This also informed Zim’s decision to accept IPO pricing below its intended target range of $16 to $19, and to reduce the number of shares sold, so that a potential $300m deal became a $217.5m one.

“Since the company doesn’t even care about the proceeds that much — they are almost a rounding error in the big picture — they accepted the lower price and decided to sell a lower share count,” Mintzmyer noted. "That’s a good thing. Less dilution at a ridiculously low pricing."

But rather than just focusing on what went wrong, Mintzmyer has strong conviction that Zim shares have better times ahead — and he has been proved right so far.

He sets a $20 to $30 price range for the share by mid-2021, and the lower rung was achieved on Friday.

In part, Mintzmyer turns to a history lesson on Hapag-Lloyd’s IPO in Germany in 2015.

Hapag struggled to complete the deal and priced at €20 (now $24), well below the intended target range.

But even with an initially weak containership market, Hapag returned roughly 50% in about a year.

Today, it trades at €103 — more than five times the IPO pricing.

Mintzmyer projects that Zim may report Ebitda of more than $500m for the fourth quarter of 2020. Earnings per share could be between $3.30 and $3.60, and potentially even larger for the first two quarters of 2021.

Zim’s share performance already was escalating as Mintzmyer published the public version of his note on Wednesday morning.

Speaking of the earlier weak trading, he said: “I expect this will rapidly change by the end of February into March as Zim reports their official Q4 results, gives [first quarter] and full-year guidance, and discusses their dividend policy.”