It’s quarterly earnings season once again, and time for Streetwise to survey what the sector’s equity analysts are closely watching as a month of financial reporting begins.
We’ve picked the brains of a few intrepid stock researchers across three of the major operating sectors.
We start things off with one of the next companies to report, and also one of the biggest: AP Moller-Maersk in the container liner sector. It’s due to tip results before trading begins in Copenhagen on Thursday.
In terms of interest on the research side, that makes it the top focus of one of the industry’s most experienced analysts.
Omar Nokta, Jefferies, on Maersk:
“I am watching Maersk and seeing if they have the confidence to raise 2024 guidance from the relatively low starting point first issued in February,” Nokta told Streetwise.
Nokta maintains it’s likely that Maersk will at least raise the bottom rung of their Ebitda guidance, which had ranged from $1bn to $6bn.
“But will they raise the whole band, the upper band, or just the bottom band,” he asked.
“Current freight rates and year-to-date averages suggest they need to lift the upper range as well. We’ll see.”
Jefferies has a “buy” rating on Maersk’s stock but has taken down earnings estimates by 118% for the full year 2024 to a loss of $14.27 per share. The bank sees a loss of $9.48 per share for the first quarter.
Maersk was the worst performer in Jefferies’ stable of 28 listed shipowners in first-quarter share pricing.
The Copenhagen-listed shipping giant fell 25.9% after releasing a sobering 2024 outlook that chilled investor interest in the rest of the liner sector as well.
But terrorist attacks on shipping by the Iran-backed Houthi rebel group have disrupted traditional trade lanes in the Red Sea and forced traffic around the Cape of Good Hope, adding tonne-miles and boosting hire rates.
While the container liner sector and, to a smaller extent, the container lessor sector continue to look for direction, that’s not the case for tankers, whether in crude or the clean product business.
And strong prospects for the latter are drawing the attention of another equity analyst.
Chris Robertson, Deutsche Bank, on Scorpio:
“We are looking at Scorpio Tankers and the status of the deleveraging of their balance sheet,” Robertson told us.
“We’re watching their plans for uses of cash after net debt targets have been met.”
Just as Maersk is a giant of the liner sector, Scorpio has a similar status in the carriage of clean products, even if it has been joined on the New York Stock Exchange by another goliath of late: Singapore-based and Oslo-listed Hafnia Tankers.
Emanuele Lauro-led Scorpio is a $3.7bn company in market capitalisation with a fleet of 109 tankers.
The analysis provided by Deutsche Bank is notable in that the German finance house was once the most bearish of the research groups following Scorpio, albeit prior to Robertson’s arrival.
The bears in that equation have been punished and the bulls rewarded, as Scorpio shares appreciated nearly sixfold from lows in the fourth quarter of 2021.
Scorpio president Robert Bugbee got investors excited in the fourth quarter of 2023 when he tipped that Scorpio was rapidly approaching a point where its net debt would come even or below the scrap value of the fleet.
At that point, the owner would switch top priority from debt reduction to capital returns, he said.
Many of those investors are still excited. Just not the ones who expected the capital return to take the form of a large special dividend or a switch to a high-payout model for a regular dividend.
Bugbee made clear in a 20 March interview with TradeWinds that share buybacks remain the priority as long as the company is trading below its net asset value.
Even as Bugbee said the company could hit its net debt target of $800m within this quarter, he threw cold water on the dividend enthusiasts.
“We’re certainly not going to a defined high-dividend payout policy,” he said.
“We believe that the preference of the majority of our shareholders and investors — and American long-only institutions — would be stock buybacks where appropriate, and increases in sustainable regular dividends, rather than high payout or extraordinary dividends, or a hybrid thereof.”
If that may disappoint some holders — particularly short-term focussed hedge funds as Streetwise understands it — there are no signs of an investor revolt within Scorpio ranks.
The story is a bit different at dry bulk owner Genco Shipping & Trading. Even if the discontent ostensibly comes from one investor, things get interesting when that holder is Greek shipping magnate George Economou.
And that dynamic draws interest from another in our analyst corps.
Poe Fratt, Alliance Global Partners, on Genco:
“I am focussed on Genco,” Fratt told us.
“Not only on the push from GK Investors [Economou] to elect a non-recommended board member but also the outlook for capes for the rest of the year. Do capes continue to outperform or do the other classes catch up? Or vice versa?”
While the capesize issue will be relevant to a group of bulker owners ranging from giant Star Bulk Carriers to Seanergy Maritime, the Economou question is more particular to Genco. Although not entirely.
New York-listed and Manhattan-based Genco is the seeming outlier in a spate of public companies that have drawn Economou’s investment dollars over the past year.
The other three outfits in Economou’s crosshairs are Greek owners who have had previous dealings with US investment bank the Maxim Group.
Economou — himself a career corporate governance laggard — has targeted the likes of Performance Shipping, OceanPal and Seanergy for perceived failures in governance standards.
Genco, on the other hand, is a governance exemplar, having finished atop analyst Michael Webber’s scorecard on environmental, social and governance matters in the past three years.
Yet Economou is waging a heated proxy fight, in which he attempts to remove veteran Genco chairman James Dolphin in favour of his own nominee. Robert Pons is a business executive with little apparent shipping experience.
Economou also makes his case on the premise that Genco should do more share buybacks rather than pay high dividends.
In other words, the opposite of the Scorpio scenario.
Interesting that. But watch this space as earnings season unfolds, with more plot twists to come.
More ship finance news
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Jiangsu Financial Leasing Co has provided financing for 10 chemical and oil product tankers and four general cargo vessels owned by Yildirim Group. Click here to read.
International Seaways chief executive Lois Zabrocky took a cut in overall compensation for 2023 but did better in the cash portion of her pay, pulling in a headline pay figure of $4.28m. Click here to read.
