When investment bank Jefferies recently broke down 2022 shipping stock performance per request of Streetwise, the tables fell into the familiar categories: product tankers, crude carriers, bulkers and container ships.
Individual company results generally went according to vessel type. In order: great, very good, fair and not so hot.
Judging the outliers
But — setting aside gas listings for a moment — there were three companies that were unable to fit into the above categories.
Navios Maritime Partners, Capital Product Partners and Costamare all had more than one operating sector: Costamare with boxships and bulkers, Capital with LNG carriers and container ships, and Navios with a smorgasbord of crude and product tankers, boxships and bulkers.
While three listings is a small sample size hardly make up a trend, arguably there is one.
Since 2021, all three owners have decided their public companies should buck the conventional “pure play” model said by finance professionals to be the way to investors’ hearts and wallets.
Instead, to one degree or another, all three are touting the advantages of diversity in operating sectors as the way forward.
But is anyone listening? And if so, is anyone buying in? Streetwise decided to take a closer look.
First, let’s understand the rationale being put forward by the diversity crowd, probably most prominently espoused by Navios chief executive Angeliki Frangou:
Pure plays are too vulnerable to market crashes in a given operating sector. Playing in multiple sectors reduces that danger as it is unlikely all will crater together. That stability allows the company to make strategic acquisitions in down markets. Combining fleets creates scale and trading liquidity through larger market capitalisation, pleasing institutional investors and making capital cheaper.
So how is that working?
One way to check is by examining share performance. Now there are various factors that can impact the stock price, but how are the rebels faring?
Navios shares gained 3.47% on the year, or 4.26% with its modest dividend included.
How to compare? Well, it certainly did better than pure container ship listings, which lost an average 42.5%, or 23.6% with dividends. But then it fell miles short of the 323% average gain of product tanker owners, 79% by crude carriers and 156% for those who mixed the two.
Navios has bulkers too. It beat that peer group, which lost 6.4% in pure share price, but not with dividends considered, as the peers delivered a 13.1% gain on that basis.
Costamare lost 26.6%. Founded as a pure container ship owner, it beat its peers there. But now that Costamare is building a bulker fleet, it fell short of peer performance there.
Capital? It lost 15.3%, again bettering the pure boxship crowd. There are slim pickings when it comes to finding public LNG carrier owners to benchmark, but Flex LNG did gain 39.2% on the year.
There is one more telling comparison. A recent Jefferies report had Navios Partners trading at 23% of its net asset value, by far the worst discount of any stock under its coverage. Capital was second-worst at 42%, while Costamare did better at 64%.
Tanker stocks traded at an average 77% of NAV, bulker stocks at 82% and container ships at 47%.
So perhaps the three diversified owners avoided the lowest lows of the pure plays, but also did not hit the highs.
The latter may be the flip side of Frangou’s argument, and it is something Streetwise has heard from investors who are sceptical about buffet-style public owners.
“When you start mixing operating sectors — and I don’t mean VLCCs with suezmaxes, but entirely different operating sectors — the problem with being diversified that way is, I believe, your valuation is going to be identified with your poorest-performing business,” said veteran shipping investor Jeremy Kramer in a recent interview.
Kramer — the longtime shipping portfolio manager at Neuberger Berman, now an advisor at West Brow Transportation Fund — spoke generally about the concept and not in relation to any one owner.
“The model of multi-sectors makes a lot of sense if you’re a private company because you’re trying to survive the cycles. But if you’re a long-only investor and have a strong thesis on product tankers, do you want a pure-play product company or one with only half its business there,” he said.
Looking up
“The point of investing is to make money. Sometimes people want to invest to not lose money. If you’re managing a fund that’s trying to find performance, you want to own a company that’s going to go up, not the one that’s not going down.”
Similar thoughts came from J Mintzmyer, who is both an investor and a researcher with Value Investor’s Edge.
“I’m interested in the idea of diverse publicly-listed shipping firms; however, the market demand has not materialised for such setups,” he said.
“As an individual investor, I prefer to be able to buy specific asset types and specific market exposure via these companies, as opposed to buying into a diversified portfolio.
Mintzmyer added: “Shipping cycles tend to occur at different times and I prefer to personally allocate my funds to different segments at different times as opposed to letting one management team spend capital in uncertain ways.”
The multi-sector model is not, however, without its supporters. But even a believer such as Jefferies lead shipping analyst Omar Nokta concedes there is not currently much evidence to back the view.
“It’s still a work in progress,” he told Streetwise. “The mixed-fleet approach has yet to materialise into a better stock performance.
“I still fundamentally believe in diversifying. I applaud Angeliki. But it takes a long time to build a valuation. You have to show the benefits of that diversification over time. Time now needs to pass.”
More ship finance news
GasLog Ltd is looking to take publicly-listed counterpart GasLog Partners private by offering $7.70 per share, including a $2.33 per share special dividend to take the company off public markets. Click here to read.
Israeli billionaire Idan Ofer has cut his holding in liner operator Zim by about one-fifth, according to a filing made public on Wednesday. Click here to read.
Giant US private equity player Oaktree Capital Management has cashed in more of its holding in lucrative shipowner Hafnia. Click here to read.
