Not so long ago, Greece seemed to have more mega-wealthy shipping magnates than beautiful beaches. That was when shares in Athens-based Goldenport changed hands for over 500p. The credit crunch put an end to that and Greek shipping paid dearly for its years of excess. Valuations hit the seabed, but now well-run, financially sound ship owners, such as Goldenport, look like resurfacing – and it's time for investors to catch them.
- Big discount to fleet value
- Results are improving
- Efficient fleet
- Highly geared to recovery
- Overcapacity still a problem
- Illusion of scrip dividend
Expanding its fleet last year to 26 vessels (now 25) steered Goldenport's revenue up by over a fifth, and there were profits for the first time in three years. True, they weren't as large as some City analysts had anticipated. But freight rates were 12 per cent lower than in 2010 and remained stubbornly low during the second half, so the outcome was predictable.
A sharp surge in freight rates for Goldenport's 12 container ships and 13 dry bulk vessels is unlikely this year, either. Ships ordered in the boom years are still being delivered and demand has weakened. However, the outlook is brighter. Overcapacity is washing through as high steel prices prompt ship owners to sell their ageing vessels for scrap and other vessels are run at slower speeds (so-called 'slow steaming'). At the same time, a reluctance to lend by European banks – responsible for 70 per cent of all shipping finance – has hit orders for new vessels, easing supply-side pressures.
Industry sources estimate that increasing demand for container ships may offset supply growth in 2012. In fact, John Dragnis, Goldenport's commercial director and son of chief executive and founder Paris Dragnis, says the likes of Ikea and Nike are beginning to pay higher rates.
Rates have held up better for the smaller, mostly 'Sub Panamax' container ships favoured by Goldenport. In addition, most new vessel deliveries are for larger ships, less likely to compete with Goldenport. It's the same for dry-bulk carriers – supply will likely outstrip demand in 2012, yet the company's Supramax fleet, which transports coal, grain and iron ore around the world, enjoys less volatile rates.
GOLDENPORT (GPRT) | ||||
|---|---|---|---|---|
| ORD PRICE: | 79p | MARKET VALUE: | £71.8m | |
| TOUCH: | 76-79p | 12-MONTH HIGH: | 115p | LOW: 59p |
| DIVIDEND YIELD: | See text | PE RATIO: | 19 | |
| NET ASSET VALUE: | 181p | NET DEBT: | 93% | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 155 | 87.6 | 125.0 | 10.0 |
| 2009 | 94 | -1.36 | -2.0 | 3.7 |
| 2010 | 88 | -0.15 | nil | 5.4 |
| 2011 | 107 | 2.34 | 3.0 | 4.0 |
| 2012* | 120 | 6.10 | 6.5 | † |
| % change | +12 | +161 | – | – |
Normal market size: 3,000 Matched bargain trading Beta: 0.2 *Charles Stanley forecasts (earnings are not comparable with historic figures) †See text £1=$1.58 | ||||
Of course, China is crucial. The latest data is weak, but China's long-term demand for coal and iron ore won't go away. Goldenport, with no capital spending to finance now its new-build programme is complete, could exploit weaker rates and strengthen its fleet again with younger, more efficient and cheaper ships in time for the anticipated upturn.
Container trade in some developing markets, such as East Africa, has already begun to look "more interesting", particularly over the past few quarters. The self-loading and unloading capability of Goldenport's "geared" vessels is ideally suited to the region's primitive ports, and rates have held up well, in contrast to the highly competitive Asian trade routes.
True, shipping remains a tough game, but Goldenport's shares look ridiculously undervalued. In its books, its fleet is valued at £169m, or 185p a share compared with a share price of just 79p. And, importantly, forecast revenues look fairly secure. Its fleet has 58 per cent of available charter days in 2012 already under contract and 11 per cent for 2013. And, because Goldenport's operating cost base is mostly fixed, the potential for profits to stream through when business picks up is huge.
Admittedly, Goldenport's bosses may not have helped their cause by cutting 2011's dividend to 4p but offering the illusion of an increase by adding in 2p a share as a scrip dividend; a trick they may repeat this year.
