ZIM: The good & the bad

Container company Zim Integrated Shipping (ZIM) reported Q2 2022 results earlier today (8/17).
As mentioned in prior threads, ZIM is a Top 10 liner company and is in a working agreement with the
2M alliance (the two largest container shipping companies - MSC and Maersk)

Let me start with
The bad

  1. ZIM reported a drop in containers shipped (about 7% for comparable Qtr; 1.4% for the H1 2022)
  2. Volume drop shows up in Pacific and Atlantic routes
  3. Freight rates (the amount ZIM charges its customers) inched down over Q1

The good

  1. Freight rates are still much higher (at least 54% higher on a comparable qtr basis)
  2. Volumes are still higher on Intra Asia, Latin America, etc
  3. ZIM bumped up its dividend payout to 30% of net income in Q2, and will pay at least 30% of net income going forward.
  4. ZIM also made a catch-up contribution on Q1 payout so it too is at 30% of net income

There’s other useful data in their Q2 2022 slide deck e.g. Slide 15. As the only Top 10 container shipping company with a mostly leased fleet, the factors mentioned in Slide 15 may have a greater impact on ZIM than on its peers/competitors
https://investors.zim.com/events-and-presentations/events/de…

ZIM is one of HohumYNWA’s large shipping stakes. In invested dollars/capital, it is my largest shipping investment. While the current stake is mostly red, I have realized wonderful gains earlier this year, plus had wonderful dividends paid during the first half of 2022. Another nibble today.

YMMV,
HohumYNWA

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8/18
The difference of a day - suddenly all the ZIM shares added in the last 2 months (about 30% of my ZIM stake) are green :slight_smile:

One other thought - ZIM’s fleet expanded in 2022. So, if their Q2 volume shipped fell, one of two things happened

  1. Lower volume per vessel sailing
  2. More blank sailings (skipped run due to vessel not being able to keep a schedule)

Will have to peruse earnings call to see if this item was discussed, or came up in the Q&A

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ZIM is one of HohumYNWA’s large shipping stakes. In invested dollars/capital, it is my largest shipping investment. While the current stake is mostly red, I have realized wonderful gains earlier this year, plus had wonderful dividends paid during the first half of 2022. Another nibble today.

Help a brother out here.

This outfit has largely struggled to turn a profit for most of the history I was able to access. Suddenly in 2021 earnings exploded. Why is that? Is that sustainable? Because a PE ratio of 1.21 and a 40% dividend yield imply that the market things it’s not sustainable. Why the sudden earnings spike?

Regards,

  • HCF
    mystified
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Help a brother out here.

This outfit has largely struggled to turn a profit for most of the history I was able to access. Suddenly in 2021 earnings exploded. Why is that? Is that sustainable? Because a PE ratio of 1.21 and a 40% dividend yield imply that the market things it’s not sustainable. Why the sudden earnings spike?

Regards,

- HCF
mystified

I can supply an answer based on what I know.

Container shipping is similar to the oil and gas sector. It goes thru a series of boom & bust periods.
ZIM has been in business for more than 70 years, but has only been a US Public listed company for about 1.5 years. If you look at the early shareholders list, it included entities such as Deutsche Bank (DB) and Danaos Corp (DAC). The first obviously a major banking entity, and the second a medium-size container shipping lessor. What I have pieced together is that Zim Integrated Shipping ran into issues
at least once in the last 10 years, and part of the bankruptcy settlement was to its lenders and/or lessors, a chunk of equity as settlement. The other big shareholder is, of course, the Ofer family (via Israel Corp. and Kenon Corp), who also likely received significant equity for infusing cash pre-bankruptcy.

So, ZIM starts over as a company with less debt (some prior debt converted to equity) and a different business model. Still in the container shipping business, but via a leasing model rather than directly
owning vessels. 2021 was an improved market, and 2022 has been even better YTD. Although as noted in the OP, there is some volume weakness in 2022. Short-term (or less than a year), ZIM has the resources to cover for container shipping rates dropping. However, longer term, falling container rates will catch up with ZIM. The company has already signed 5-12 year charters on around 40 (mostly new) vessels.
The high dividend model? That’s a tactic used by more than a few insiders - so Ofer’s (in ZIM case),
Carl Icahn (in IEP model), Johan Fredriksen (for Fredriksen-backed entities e.g FLNG, GOGL). High payout for the risk involved. One has to know when to exit the merry-go-round, and it definitely should occur before the music stops.

How are you arriving at a 40% yield? Shipping companies typically operate with a variable dividend model. I’m going conservative with $2B in Net income (for H2), so 30% of that is $600M, and per share that works out to $5/sh.

Hope that helps
HohumYNWA

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How are you arriving at a 40% yield? Shipping companies typically operate with a variable dividend model. I’m going conservative with $2B in Net income (for H2), so 30% of that is $600M, and per share that works out to $5/sh.

I’m starting to think I don’t know enough about shipping to make intelligent moves in this space.

I took dividend yield from Seeking Alpha:
https://seekingalpha.com/symbol/ZIM/dividends/scorecard

Previously announced quarterly dividend was $4.75. Multiply by 4 for annual payout to get $19. Divide buy current share price ($49.12) to get 39%. I guess price wandered a bit between posts.

Regards,

  • HCF
    showing his math

Previously announced quarterly dividend was $4.75. Multiply by 4 for annual payout to get $19. Divide buy current share price ($49.12) to get 39%. I guess price wandered a bit between posts.

Poking holes here.

  1. The $4.75/sh for Q2 2022 is comprised of a 30% payout for Q2 and a catch-up of 10% on Q1 2022
  2. ZIM have changed the dividend pay-out model at least three times in the last year.
    a. Fixed dividend, once a year
    b. Quarterly, 20% of Net Income quarterly, with Q4 payout being 30-50% of annual Net Income
    c. Quarterly, 30% of Net Income quarterly, with Q4 payout being 30-50% of annual Net Income

Of the top of my head, items of variability

  1. of containers shipped

  2. Shipping rates
  3. Vessel size
  4. Trading routes
  5. Fuel costs
  6. Vessel fuel efficiency
  7. Vessel trading style: Fixed or Spot
  8. Charter rates with lessors
  9. Length of charters with lessors
  10. Logistical efficiency/inefficiency
    You really think there is a good way to come up a decent estimate of net income with that many variables?
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