A year and two months after it was issued on the New York Stock Exchange at a value of 1.7 billion dollars, the marine transport company arrived Zim Last March to a record value of over 10 billion dollars. In the months that have passed since then, Zim’s stock has lost more than half of its value, and the shipping company today trades at a value of $4.1 billion – which represents a 370% increase in the share price since the IPO, but a 51% drop from the record (dividend-adjusted return).
stock Zim It peaked shortly after the company released its financial statements for 2021, a year in which the tide in the shipping industry boosted its net profit ninefold to $4.64 billion, and its average freight rate rose 227%.
Zim then estimated that the revenues it will present in 2022 will be similar, alongside an increase in the annual EBITDA (earnings excluding interest, tax, depreciation and amortization) from $6.6 billion in 2021 to $7.5-7.1 billion. Later, the annual EBITDA forecast increased to 8.2-7.8 billion dollars.
The results presented by Zim in the last four quarters (from the third quarter of 2021 to the second quarter of 2022) are nothing short of amazing: a total EBITDA of $9.1 billion and a cumulative net profit of $6.2 billion.
The second quarter of the year, the results of which were recently reported, ended with a net profit of 1.3 billion dollars – a 50% increase compared to the corresponding quarter in 2021, but a 24% decrease compared to the net profit in the first quarter of the year. For the first time, Zim missed the analysts’ forecasts in the profit line, and did not overtake them by a large margin. Since the publication of the reports, on August 17, the company’s stock has fallen by 25%.
Raised the dividend to 30% of the quarterly profit
In a conversation with Globes after the publication of the reports, the CEO addressed this Eli Glickmanwho called the quarterly profit “phenomenal”, and said that “investors got used to the good, they expected us to earn more in the quarter”.
Zim has distributed approximately $3.5 billion as a dividend to its shareholders since it was issued (double the amount at which it was issued) and recently announced an increase in the dividend policy and a distribution of 30% of the net quarterly net profit, instead of 20%. The largest shareholder in Zim, which did not participate in that sale offer, is Idan Ofer’s Canon company, which owns about 26% of Zim shares.
At the end of the first half of the year, the Navy had cash balances totaling approximately one billion dollars, and since its issuance, the company has made several large investments, including several ship lease transactions.
Last week, Zim announced the signing of a long-term agreement valued at more than a billion dollars for the supply of liquefied natural gas, with the Shell company. The agreement is to refuel 10 container ships that will transport cargo from China and South Korea to the east coast of the USA and the Caribbean Sea region.
Despite the impressive results, which made Zim the most profitable company in Israel in the last year, among the banks covering the stock, according to Wall Street Journal data, only one has a positive recommendation, five neutral and one negative, after just three months ago the majority were positive. It seems that the prevailing forecast is that it will be more and more difficult to show quarterly growth in the financial results, against the background of the changes in the macroeconomic environment in general and in maritime transport in particular.
“The lack of transport capacity also resulted in inflation”
Chen Herzog, the chief economist of the consulting company BDO, points out that in recent months there has been a noticeable decrease in sea freight prices, but in a long-term perspective, they are still relatively high. “With the entry into the corona crisis in 2020, there was a phenomenal jump in transportation prices,” says Herzog. “There is transport by sea and there is by air, and at the beginning of the epidemic all the airports were closed and air transport almost stopped (referring mainly to transport carried out in passenger planes that fly cargo alongside the passengers).
“On the other hand, there was a disruption in the work of the ports, and the result was bottlenecks in the world of shipping all over the world, which led to a very sharp increase in the prices of maritime transport.
“The cost of shipping a container, which was about $2,000, jumped at its peak (about six months ago) to $11,000. The trend accelerated with the exit from the crisis, when demand increased. The lack of global shipping capacity also turned into inflation, because the increase in transportation prices affects the increase in import prices , and it rolls over to the consumer.”
What happened in the last months?
Herzog: “In the last six months, the supply in the shipping sector increased and more lines came into operation, and on the other hand, the restrictions that affected air transport were removed. At the same time, a policy of raising interest rates and slowing the rate of growth in the world led to a cooling of demand.
“The combination of all of these led to a drop in sea freight prices. They are still much higher than the prices before the Corona crisis, but from $11,000 at the peak for a container, today the price is around $5,000, which means prices have dropped by more than half compared to the peak prices.”
Before the corona virus, were the prices stable?
“There is always volatility in the shipping industry, because the process of building more ships and increasing lines to meet demand is not immediate. There was a similar crisis in the shipping world in 2003-2004, and even then a period of high tide turned into a period of low tide. This is part of the business environment. The Corona crisis brought to disruption and an unprecedented increase in prices, and currently we see a moderation.”
According to him, this is encouraging news for consumers, because the drop in prices relieves inflationary pressures and eases the cost of living. “In the end it ends up in the consumer’s pocket,” he says. “There is also an improvement in delivery times. There were things that previously could not be delivered. It is a more balanced branch structure.”
What does this mean for shipping companies?
“Even after the declines, freight prices are still higher than what we have known in the past, and I think that ultimately the demand for freight continues to grow – the economy continues to grow. I don’t think there is a warning sign here for the industry. At a price of 11 thousand dollars per container it was clear to everyone, including the shipping industry, This is an unusual price level that will not be permanent, and I am sure that the companies were prepared accordingly.”
You say that the demand for transportation continues to grow. On the other hand, there is talk of a slowdown and recession in central countries. Shouldn’t that affect it?
“They are talking about a slowdown in the global growth rate, but not about a decrease in demand. We have to remember that the field of maritime transport, globalization and international trade are inherent to the modern economy. The population is growing, the world economy is growing, and even when talking about a slowdown, it is short-term. I don’t think there is any reason to worry about growth in the scope of cargo movement in the long term”.