Dry Cargo

Cleaves reckons five-year-old capes represent best bargain in shipping

A new report from Cleaves Securities suggests that buying a five-year-old capesize now could be one of the best investments in shipping.

Capesize one-year time charter rates have risen 16% month-on-month to be quoted at $18,250. This is a result of improving sentiment in the spot market as Brazilian iron ore exports are close to normalised and cargo flows out of other regions have been strong.

Current time charter rates imply a fair value for a five-year-old cape at $36.5m, or 26% above Cleaves’ current valuation at $29m.

“The generic EV/EBITDA for a 5y old Cape is now 7.2x, with a ROE of 19% and FCF yield at 26%. The newbuilding parity rate is around $20k/d, so there is still no significant incentive to order. This supports our view that 5y old Capes are a bargain at current levels and that this expansionary phase of the cycle could be one of the longest on record since the 1740s,” Cleaves noted in its latest weekly shipping report penned by Joakim Hannisdahl.

Hannisdahl has constructed a dry bulk time series going all the way back to the 1740s. His view is that the current expansionary phase of the cycle could be one of the longest on record, although gains should be slow and steady year over year.

“My current valuation of a five-year-old capesize vessel is $29m, which seems like a bargain given the firm cash flow available in the time charter market and versus the historical median value at $36m and mean at $48.5m,” Hannisdahl told Splash. Cleaves’ current valuation represent trough levels, 10% below the cyclical lows of 2012 and only 25% above the all-time-lows in early 2016.

“Taking into account that dry bulk equities on average is priced at a 14% discount to NAV, the downside seems limited and the risk/reward is highly attractive in my mind,” Hannisdahl said.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.


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