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The market is depressed. The people are not.
The debt markets exist. But you are looking at a lot less for a short term costing a lot more. A lot of the banks will be properly back into the game by 2010. It will help to have companies based in ship finance exporting countries.
The capital markets exist. The bond market is open at very reasonable rates. The equity markets are open for existing issuers but valuations are poor.
We may have a rebound this year thanks to stimulus plans and fiscal loosening, but the underlying damage is done. Banks will eventually HAVE to account for their losses. The write-downs have to come from somewhere and government debt is hardly the answer. Unless they wait years with the balance sheets impaired.
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Capital Market Strength Makes Winners all around in ATB GMR Transaction
In a market in which issuing new equity at or above net asset value is nearly impossible, and at a time when high payout shipping companies are struggling to grow, General Maritime’s all stock acquistion of Arlington Tankers not only makes perfect economic sense – the cashless and symbiotic nature of the deal is probably a blueprint for a few more transactions to come.
Written by: carisk | Categories: Freshly Minted, The Week in Review | August 7th, 2008 | Add a Comment
Box Market Heading for Bruising, Say Citigroup Analysts
Box Market Heading for Bruising, Say Citigroup Analysts
UK-based Citigroup Smith Barney analysts Simon Smith and Roger Elliott issued a bearish beginning of the year report on container shipping titled simply and ominously: “Hangover Starting.” The metaphor seems to be particularly apt and widely used in shipping these days, where even as they revel in phenomenal profits, everybody is aware that at some point the party is going to end and they are going to have to deal with Sunday morning…and worse yet, Monday. Smith and Elliott see that morning coming, and coming soon. In particular, they cite unfavorable early 2005 rate negotiations, no break from WTO-enforced removal of textile quotas, rising cost pressures and an increasingly unfavorable supply demand balance.
Asia-Europe trade lane agreements, traditionally a good indicator of the year’s price environment, yielded flat rates this year which, while not terrible in themselves, will not do much to help shippers faced with rising costs. Unit costs are expected to grow by 3-4%, partially due to a weak dollar but also attributable to a loss of positive carry which, according Citigroup Smith Barney analyst Charles de Trenck, is a natural occurrence when topline drivers, i.e. negotiated rates, slow but momentum on higher costs, i.e. past negotiated contracts for equipment, boxes, etc., continues. This is where the “hangover” can be directly traced back to the “party.”
Not only this, but if the Asia-Europe trade lane agreements yielded flat rates in the current environment, the future for container shippers grows increasingly bleak as supply looks set to outstrip demand by progressively larger amounts over the next two years, with capacity growth estimated by Citigroup Smith Barney at 12.4% and 15.4% for 2005 and 2006 respectively, while demand growth is forecast at 8% and 9% for the same years. These demand growth numbers are not feeble, but they are also not strong enough to stop the gap from growing, though the picture could be somewhat altered if differences between predicted and actual scrapping and utilization materialized.
Tariffs & Tidal Waves
An anticipated boost in demand when WTO members agreed to lift all quotas on textiles and apparel on December 31, 2004, however, has so far turned out to be what Smith and Elliott disparagingly call a “damp squib.” They attribute this to actions by authorities designed to mitigate the effects of the quota removal while complying with it in word. And as for the tsunami, it seems to have had a blessedly small impact on the industry as a whole, as minor damage sustained in some places is more or less balanced out by higher volume, which is expected to not yield particularly higher profits as many shippers will be contributing their much-needed services charitably.
High Risk: AP Moller and P&O
In the same report, Smith and Elliott categorized both P&O Nedlloyd and AP Moller as High Risk, rating PONL a reasonably optimistic HOLD with a target price of 39 euros and AP Moller a less positive SELL with a target price of DKr40,000. In the case of P&O Nedlloyd, the analysts believe that the group’s exceedingly low price to book and EV/EBITDA multiples give the group potential to close the gap with itself and the majority of the sector, thus keeping the stock price at least level even if the container sector as a whole were to fall to a lower center. On the contrary, they sees more downside risk for AP Moller, citing in particular “poor disclosure to public shareholders, which we believe puts them at a disadvantage.”
China: A Light in the Tunnel
In another Citigroup Smith Barney Report, analysts Yiping Huang and Lan Xue auspiciously predict that the long-awaited “landing” in China will be “soft.” They forecast that the government will move from administrative to monetary tightening, allowing interest rates to rise gradually and the exchange rate to become more flexible. And while they do expect the investment slowdown to have negative consequences for commodities markets, they look for more level growth in consumption. So whether or not there are bad times ahead for the container market, highly China-dependent markets and sectors such as dry bulk may have better things coming. And maybe even the participants in the container party will wake up to a soothing brunch with which to nurse their hangovers so that they can speedily recover.
UK-based Citigroup Smith Barney analysts Simon Smith and Roger Elliott issued a bearish beginning of the year report on container shipping titled simply and ominously: “Hangover Starting.” The metaphor seems to be particularly apt and widely used in shipping these days, where even as they revel in phenomenal profits, everybody is aware that at some point the party is going to end and they are going to have to deal with Sunday morning…and worse yet, Monday. Smith and Elliott see that morning coming, and coming soon. In particular, they cite unfavorable early 2005 rate negotiations, no break from WTO-enforced removal of textile quotas, rising cost pressures and an increasingly unfavorable supply demand balance.
Asia-Europe trade lane agreements, traditionally a good indicator of the year’s price environment, yielded flat rates this year which, while not terrible in themselves, will not do much to help shippers faced with rising costs. Unit costs are expected to grow by 3-4%, partially due to a weak dollar but also attributable to a loss of positive carry which, according Citigroup Smith Barney analyst Charles de Trenck, is a natural occurrence when topline drivers, i.e. negotiated rates, slow but momentum on higher costs, i.e. past negotiated contracts for equipment, boxes, etc., continues. This is where the “hangover” can be directly traced back to the “party.”
Not only this, but if the Asia-Europe trade lane agreements yielded flat rates in the current environment, the future for container shippers grows increasingly bleak as supply looks set to outstrip demand by progressively larger amounts over the next two years, with capacity growth estimated by Citigroup Smith Barney at 12.4% and 15.4% for 2005 and 2006 respectively, while demand growth is forecast at 8% and 9% for the same years. These demand growth numbers are not feeble, but they are also not strong enough to stop the gap from growing, though the picture could be somewhat altered if differences between predicted and actual scrapping and utilization materialized.
Tariffs & Tidal Waves
An anticipated boost in demand when WTO members agreed to lift all quotas on textiles and apparel on December 31, 2004, however, has so far turned out to be what Smith and Elliott disparagingly call a “damp squib.” They attribute this to actions by authorities designed to mitigate the effects of the quota removal while complying with it in word. And as for the tsunami, it seems to have had a blessedly small impact on the industry as a whole, as minor damage sustained in some places is more or less balanced out by higher volume, which is expected to not yield particularly higher profits as many shippers will be contributing their much-needed services charitably.
High Risk: AP Moller and P&O
In the same report, Smith and Elliott categorized both P&O Nedlloyd and AP Moller as High Risk, rating PONL a reasonably optimistic HOLD with a target price of 39 euros and AP Moller a less positive SELL with a target price of DKr40,000. In the case of P&O Nedlloyd, the analysts believe that the group’s exceedingly low price to book and EV/EBITDA multiples give the group potential to close the gap with itself and the majority of the sector, thus keeping the stock price at least level even if the container sector as a whole were to fall to a lower center. On the contrary, they sees more downside risk for AP Moller, citing in particular “poor disclosure to public shareholders, which we believe puts them at a disadvantage.”
China: A Light in the Tunnel
In another Citigroup Smith Barney report, analysts Yiping Huang and Lan Xue auspiciously predict that the long-awaited “landing” in China will be “soft.” They forecast that the government will move from administrative to monetary tightening, allowing interest rates to rise gradually and the exchange rate to become more flexible. And while they do expect the investment slowdown to have negative consequences for commodities markets, they look for more level growth in consumption. So whether or not there are bad times ahead for the container market, highly China-dependent markets and sectors such as dry bulk may have better things coming. And maybe even the participants in the container party will wake up to a soothing brunch with which to nurse their hangovers so that they can speedily recover.
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