The newest acquisition by MPC Container Ships (MPCC) will pay for itself in under three years as surging rates meet "a sustainable shortage of tonnage" in the small boxship segment, chief executive Constantin Baack told investors on Wednesday.
Baack's remarks came in an investor conference call to explain the acquisition of Arne Blystad's Songa Container and its remaining 11-ship fleet for $210.5m in cash and shares.
The deal represents a major consolidation between European boxship tonnage providers in a boiling hot charter market.
The deal, which is expected to be completed by the end of July, will see Songa’s fleet of 11 containerships with an average capacity of 2,250 teu come under the control of MPCC, giving it a total fleet strength of 75 vessels with a total capacity of 158,000 teu.
Baack said the acquisition was backed by the company’s strong belief in sustainable container market fundamentals and its desire to take advantage of the significant lag between asset values
The big driver is a value-rate gap in the small boxship segment, created by what one participant on the call characterised as "obscene charter rates".
The phrase referred to Baack's revelation that his company has fixed an unnamed 2,800-teu vessel for more than $100,000 per day for a period of 65 to 80 days. That means up to $8m of income for a few weeks of summer, more than the ship originally cost.
More such deals could be in the making but the focus is on period deals, which are getting longer. Baack said his company had quite a few ships with charters still to be arranged even before the Songa acquisition.
By Baack's calculations, a small containership that can currently be bought for $21m charter-free on the sale-and-purchase market is actually now worth more like $34m as a combination of Ebitda and scrap.
Supply side
Currently, the residual value risk of acquisitions is small, and the supply-demand imbalance can only get worse as large boxships make up the overwhelming volume of today’s orderbook, and some 38% of ships in the relevant bracket are 15 years old or older.
"The supply side is basically cut in stone," Baack said.
His company expects "a sustainable shortage of tonnage for the next 12 to 24 months" in the small-ship bracket where it enjoys a dominant position with a fleet of 75 ships.
Baack reckons that the deal will add $170m to $180m in revenues for MPCC during the remainder of this year, a projected $350m next year and $450m in 2023.
The acquisition of Songa is set to boost MPCC's position as "the leading intra-regional container tonnage provider", according to Baack.
A Clarksons Platou Securities analyst reacted positively to the deal.
Frode Morkedal said the average nine-month charter backlog of the Songa fleet is "positive given today's record strong market environment".
"We conclude that the transaction is accretive, and we lift 2021 and 2022 earnings per share estimates by 4%," he added.
Morkedal views the purchase price as attractive compared with the investment bank's $279m fleet valuation, as ship values have increased since 31 May when the transaction was negotiated.
The payback period for MPCC is less than two years, the analyst added.
"Based on this, we conclude that this is a very attractive deal for MPCC," he said.
Clarksons Platou is calculating a net asset value of NOK 21.90 per share for MPCC, including the Songa acquisition.
On 31 May, the stock price was NOK 17.34.
The investment bank had a net asset valueestimate of NOK 15.70 at that time, which increased to $19.60 on 21 June, reflecting rising ship values in the interim period.
Clarksons Platou has lifted its 2021 Ebitda forecast to $169m and to $309m in 2022.
MPCC itself has said earnings could potentially be between $170m and $180m for 2021, $350m for 2022 and $450m for 2023.
'Buy' rating
"Given that time-charter duration for renewals are around three years today, we believe MPCC should be able to book the majority of the fleet before the containership charter market potentially starts to come down from peak levels over the next year or so," Morkedal said, reiterating a "buy" rating on the shares.
Three other Songa boxships not included in the deal were already subject to agreed sales to third parties.
The share portion of the transaction gives Songa shareholders Canomaro Shipping and Klaveness Marine stakes in MPC Capital, as well as Songa principal Arne Blystad.
Klaveness Marine is the investment company affiliated with shipowner Torvald Klaveness, while Canomaro is the Norwegian shipping investment vehicle of Swedish fishing billionaire Magnus Roth.
