Car carriers are severely undervalued judging by the latest unprecedented charter rates, analysts believe.

Shipping investment banks have been ripping up their daily earning assessments as term deals for two Gram Car Carriers vessels were revealed at “exceptionally high” and “mind-boggling” levels.

Gram Car Carriers stretched a deal for the 6,700-ceu panamax Viking Adventure (built 2016) at a whopping $60,000 per day for five years, well ahead of analyst assumptions and up from $45,000 in May.

And the smaller 4,200-ceu sister Viking Coral will stay on with an unnamed Asian operator for another two years at $35,000 per day.

The ships were previously on deals at $25,000 and $16,500 daily.

Clarksons Securities sees the charters as boosting the tonnage provider’s earnings per share (EPS) to more than NOK 36 ($3.48) in 2023, up from an estimate of NOK 23 earlier.

And the investment bank is forecasting EPS of NOK 44 in 2024.

A pay-out ratio of 50% of profit suggests a dividend of NOK 18 to NOK 22 over the next few years, analysts Frode Morkedal and Even Kolsgaard argue.

Fearnley Securities said maintaining this ratio means the Oslo-listed owner will be “basically debt free” by 2025.

But analysts Oystein Vaagen and Erik Gabriel Hovi see little need for such rapid deleveraging.

Dividends to rise?

“Should GCC [Gram Car Carriers] be able to pay out 75% of earnings, this implies 20%-22% dividend yields,” they said.

Clarksons Securities estimates the company’s net asset value (NAV) at NOK 200 per share, against a stock price of NOK 141 in Oslo on Wednesday.

“We believe asset values have an additional 20%-30% upside potential to reflect the current charter market, resulting in a potential NAV of NOK 260-280 per share,” Morkedal and Kolsgaard said.

“However, we expect that, like the container ship market, the stock market will reflect earnings and dividends rather than asset valuations,” they added.

The Viking Adventure is valued at $75m.

Values are too low

But total Ebitda from the charter of $95m over five years “suggests that present asset values are too low”, the analysts said.

They calculate a fair value of $98m, meaning ship values might rise by 30%.

Two more Gram Car Carriers panamaxes are up for renewal early next year, with Clarksons Securities “conservatively” assuming deals at $55,000 per day for five years.

“Given that the company has two available vessels, we wouldn’t be surprised if they fix one vessel on a shorter contract to take advantage of $100,000 per day or higher one-year time rates in order to increase the dividend in 2023,” Morkedal and Kolsgaard added.

A 16-year-old Gram Car Carriers panamax will also become available in the fourth quarter of 2023. Clarksons Securities is pencilling in a rate of $50,000 for that unit.

The analysts said: “Strong demand drivers, combined with limited supply, support the car carrier market, allowing for the locking in of high time-charter rates over long contract durations.”

Shortage of ships

According to Gram Car Carriers, the world fleet will be short by 17 vessels in 2022, growing to 28 vessels in 2023.

The tight market balance is expected to keep charter rates high and duration of contracts extended for the impending rate renewals in 2023, Clarksons Securities believes.

Fearnley Securities said Gram Car Carriers’s next midsize vessel comes open in the second quarter of 2024, and should manage to secure $35,000 per day.

And the shipowner also has three smaller distribution vessels moving off deals this year and in 2023.

The investment bank has increased its rate assumptions for the ships from $14,000 per day to $20,000.