Norwegian investment bank Fearnley Securities has started coverage of "containership titan" Atlas Corp as part of an upgrade of the whole sector.
Analysts Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart believe shipping companies will see the benefits of a charter rate rally of up to 40% over the summer as home-working economies — the "Zoom boom" — boost demand for cargoes and deplete inventories.
Fearnley has upgraded all of its boxship companies under coverage to "buy", while its top pick remains Danish giant AP Moller-Maersk.
But its analysts also like the look of New York-listed Atlas Corp, the owner of Seaspan Corp.
Earlier this year, Seaspan completed a $750m reorganisation that saw the company take over a mobile power solutions provider from Canada's Fairfax Financial Holdings.
The Hong Kong and Vancouver-headquartered containership owner created Atlas Corp as a new parent company to buy APR Energy, which delivers portable power plants.
The deal effectively transformed Seaspan, a major lessor of containerships, into a multi-sector asset management firm.
Fearnley said spot rate sentiment, growth ambitions and an investment-grade credit target will weigh positively on Atlas' equity story.
The stock is trading at around $9.40 in New York, while Fearnley has a target price of $12.
The share price has fallen 30% this year following the initial demand destruction brought about by Covid-19.
Upside for shares
"Though Seaspan remains largely contracted over the coming years, a charter market up 30%-40% in a matter of weeks should weigh positively on sentiment and improve the playing field for 2021," the analysts said.
The addition of APR also offers an attractive exposure to the growing power market, they added.
A key factor for the group is whether it can deploy capital into new "accretive investments", Fearnley said.
Contracted revenue of $4.2bn solidifies Seaspan’s role as the centrepiece within the group, generating about 85% of the estimated $900m Ebitda for 2020, the investment bank added.
APR on the other hand offers access to a rapidly growing market through its mobile technology and proprietary modular plants, offering scalable power to market quickly, Fearnley believes.
"With several developing countries still relying on costly/polluting energy sources and increased focus on greener energy, APR sits in the sweet spot in terms of bridging and expediting the transition to cleaner and more efficient power solutions," Fearnley said.
Asset values rising?
Looking at the wider boxship sector, Fearnley said it foresees contract renewals at higher levels and improving asset values.
"On average we see more than 40% upside on the equities, but also interesting high yield credits with attractive risk/rewards and a clear path to refinancing," the analysts said.
They added that, over time, freight and charter rates will correlate.
The idle fleet has already reduced significantly from over 10% in the second quarter to around 4% now.
"The tonnage owners are now also able to request longer durations and less flexibility, providing a welcomed boost to utilisation," Fearnley said.
In addition, the company argued that balance sheets have been revitalised by substantial equity injections, and there is limited downside risk in vessel values.
Fearnley also has buy ratings on MPC Container Ships, Songa Container and Borealis Finance.
