Gram Car Carriers (GCC) could see a big jump in its share price if vessel values start to rise in record markets.
Shipping analysts have been full of praise this week for the Oslo-listed company’s latest long-term charter, and believe there is more upside to come.
The Norwegian tonnage provider fixed its 4,900-ceu mid-sized Viking Passama (built 2012) out to Wallenius Wilhelmsem Group subsidiary Armacup, a specialist in shipping used cars, for six years.
The contract is worth $72.9m over the term ending in the fourth quarter of 2028.
The day rate is a firm $33,000 as period deals get longer.
The ship’s current charter is expiring in the fourth quarter of 2022 at $17,000 per day.
The deal compares to the $28,000 per day contract signed for GCC’s 4,200-ceu Viking Emerald (built 2012) for five years in late March.
Clarksons Platou Securities and Fearnley Securities estimate Ebitda of between $9.5m and 410m from the Viking Passama charter.
“Booking six-year charters at this high level could help their dividend story,” said Clarksons Platou analysts Frode Morkedal and Even Kolsgaard.
Dividend payments are now capped at 50% of net results in loan agreements, but the company has previously said they believe this portion can be increased if the contract backlog grows, they added.
The stock has an 10% dividend yield based on Clarksons Platou’s current 2023 estimates.
Will ship values rise?
The investment bank has a “buy” rating on the GCC stock and a target price of NOK 135 per share, against NOK 100 in Oslo on Thursday.
“Chartering out vessels for as long and as high as possible (a preferred length of five to seven years) is part of the company’s strategy to boost earnings visibility and potential valuation based on a dividend yield,” said Morkedal and Kolsgaard.
They believe ship values remain conservatively assessed based on obtainable charters, however.
GCC has a fleet of 18 car carriers with an average age of 10.8 years.
Clarksons Platou calculates GCC’s net asset value at $14.30 per share (equivalent to the NOK 135 per share target price), based on a fleet valuation of $723m on a charter-free basis.
“We estimate that if charter-free vessel values increased to reflect the Viking Passama charter, which would be from $46.5m to $59m, or 27%, the NAV might rise to more than NOK 190 per share, even after negative charter adjustments,” the analysts said.
Backing the strategy
Fearnley Securities said: “We fully back the strategy GCC now seems to be following, namely to secure long-term employment at attractive rates for a portion of the fleet.”
“Once a strong foundation has been created, we expect GCC to target shorter-term charters more opportunistically for a smaller portion of its fleet,” analysts Oystein Vaagen, Erik Gabriel Hovi and Ulrik Mannhart said.
Next up for the company will be re-fixing four panamax-size units rolling off current contracts in late 2022 and 2023.
They are currently on charters in the $16,000 to $18,000 per day range, but Fearnleys expects a “multiple” of these numbers for new deals.
