What is wrong with Ardmore Shipping, Capital Product Partners, Teekay Corp, Teekay Tankers and Seaspan Corp?
The five were dropped from coverage this week by Deutsche Bank, but it retained research analysis of 16 other shipping names.
Shipowners with small market capitalisations were expected to be among those the bank dropped, so Ardmore and Capital could not have been surprises. At $275m and $217m in share value, they are considered “micro cap” listings.
But Teekay Corp, Teekay Tankers and especially Seaspan are significantly bigger at $533m, $735m and $3.1bn, respectively. The Teekay companies are in the “small cap” range and Seaspan in the “mid cap” — about as large is it gets for listed shipowners.
What made Deutsche Bank prioritise others? TradeWinds went to lead transportation analyst Amit Mehrotra for answers this week.
The first thing Mehrotra wants people to understand is that Deutsche Bank is not de-emphasising shipping. His four-man analyst team has recently taken on new work in industries including oilfield services and building products and materials.
This put 64 stocks under research — simply too many, Mehrotra said. He noted that six other transport stocks were cut along with the five shipping names.
Shipping commitment
“If anybody reads this and thinks our shipping commitment is reduced, it’s 180 degrees the wrong read,” Mehrotra said.
“There’s only one bank on Wall Street that does a dedicated shipping conference and that’s Deutsche Bank. My personal commitment to shipping has never been higher in the past five years.”
But what about the companies cut? As for Ardmore and Capital, Mehrotra essentially confirmed that size matters.
Product tanker owner Ardmore is a fine company, for example, but Mehrotra cannot recommend it to big institutional investors compared with competitor Scorpio Tankers with a market capitalisation of some $2.1bn — nearly eight times bigger.
Yes, Seaspan in the containership sector is larger still at $3.1bn.
“But 70% of the company is held by insiders, so only 30% of the shares are available for trading on any given day,” Mehrotra said.
Seaspan's recent transition into owning portable power plants has also made it less attractive to pure shipping investors, he said.
Teekay Corp, once a bellwether of tanker stocks, no longer is the group’s most compelling owner of assets: Teekay LNG is, and Deutsche Bank maintained coverage on them, Mehrotra noted.
Teekay Tankers is much like Ardmore. Mehrotra likes them, but not as much as peer owner Euronav with a market capitalisation of $2.5bn — more than three times bigger.
“Companies like Scorpio Tankers and Euronav check all the boxes as to market value and trading liquidity — those things matter,” Mehrotra said.
