Global shipping stocks to correct further if trade weakens

1 July 2018, Global – We have launched a series of reports to track whether the global transport stocks’ valuations have bottomed out following their recent correction for your easy reference. In our second report, we will focus on the listed shipping companies globally.

Two-thirds of the global shipping companies are trading at a discount to their 5-year historical average valuations.

Overall, 66% of the global shipping companies’ valuations have fallen below their 5-year historical average valuations following the recent market correction.

Among them, Frontline, Nordic American Tankers, Teekay Corp, Qatar Gas Transport and Navios Maritime are trading at the deepest discounts to their 5-year historical average valuations. (We have not used P/E valuations in this analysis as many of the shipping companies have been loss-making or only marginally profitable.)

Chart: Global Shipping: Current Price/Book Valuations versus 5-Year Average Historical Valuations

Global Shipping- Current Price/Book Valuations versus 5-Year Average Historical Valuations

However, only a handful of shipping companies are trading within 20% from their historical trough valuations

There are only 9 listed global shipping companies which are trading less than 20% above their historical trough Price/Book valuations. These include Sincere Navigation, MISC, National Shipping Corporation of Saudi Arabia, Nordic American Tankers, Tsakos Energy Navigation, AP Moeller-Maersk, Qatar Gas Transport, COSCOL, Wan Hai Lines.

In contrast, 43% of the global shipping companies are trading above twice their historical trough valuations. Among them, Eagle Bulk, Scorpio Bulkers, Pan Ocean, Diana Shipping, Frontline, Pacific Basin Shipping, Golar LNG, DHT Holdings, Precious Shipping, Malaysian Bulk Carriers and Hyundai Merchant Marine are still trading at over three times their historical trough P/B valuation levels among the global shipping companies.

Chart: Global Shipping: Current Price/Book Valuations versus Trough Valuations in Past 5 Years

Global Shipping- Current Price/Book Valuations versus Trough Valuations in Past 5 Years

Shipping stocks still have downside risk if global trade weakens

The global shipping companies’ Price/Book valuations are still nearly twice as high as their historical trough levels. Therefore, the sector can still correct further if global trade weakens.

Overall, the global shipping sector is trading at 0.89x Price/Book currently, a 7% discount to its historical average valuation in the past 5 years. Specifically, the Asia Pacific shipping sector is trading at 0.99x P/B, higher than the US and European shipping sectors’ valuation of 0.65x and 0.73x P/B respectively but lower than the other regions’ shipping sector valuation of 1.07x P/B.

Chart: Global Shipping Companies Current Price/Book Valuations versus Historical Average and Trough Valuations in Past 5 Years

Global Shipping Companies Current Price/Book Valuations versus Historical Average and Trough Valuations in Past 5 Years

Chart: Global Shipping – Current Price/Book Valuations (2018)

Global Shipping – Current Price/Book Valuations (2018)

Note: Stocks with upside of more than 10% based on our fair value are assigned an Outperform rating. Stocks with downside of more than 10% based on our fair value are assigned an Underperform rating. Stocks with upside or downside of less than 10% based on our fair value are assigned an In-line rating. These are Crucial Perspective’s proprietary rating classifications and by no means serve as investment recommendations.

Independent Research Declaration: Crucial Perspective does not own any position in the equities featured in this report nor have we received any compensation for writing this report. 

 

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