$ZIM - Playing spot exposure of containerships

Almost like clockwork, ZIM has fallen in that one-month window post dividend, and is starting to flatten out.

Moreover, container freight rates have started to finally level out, having fallen almost 80% from its peaks. Which is roughly how much ZIM has fallen too.

This may give us a window of opportunity to go long to capture the dividend bump. Recall that the dividend was anticipated to be around $10 until Q3 results came out, but even if it is a bit lower than that, it should result in some price appreciation given the stock price is $17 now (!).

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Container rates have levelled out over the last two weeks:

And so has ZIM prices, still respecting that post-earnings window well:

Still a little early as next earnings are 2 months out, but initiating positions in case China reopening affects container rates too:

  • Sold 4/21 $12.5P for $1.50. Interestingly, prices went up today and the put buy order from last week still hit, as IV is going up. If this gets assigned before earnings in March, I’m more than happy to own more ZIM at $11. Otherwise, will play for expiry.
  • Have buy order in place for $17.
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ZIM is curling up now. We’re still 1.5 months out from earnings, but container rates holding, so we could be looking at a bottom. Might see additional movement after Chinese New Years holiday ends next week.

Buy order of $17 hit day before. Sold puts have lost about a third of their value.

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ZIM has 30M shares short and seems to be enjoying a bit of a short covering rally. Up 30%+ from recent bottom. No change in container rates, which seem to have bottomed. Complicates the earnings related play a few weeks out.

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Update on ZIM:

  • ZIM earnings are now expected on Mar 8, 2023 - we could see some appreciation during this time as this has happened the last few times during the 2-3 weeks prior to earnings
  • ZIM bounced off of the 20SMA, which is encouraging
  • ZIM got a downgrade from Barclays a week ago with a $15 PT, down from $26.50. I think all this is priced in already, but it did cause prices to fall 5% that day.

Zim Integrated Shipping Services (NYSE:ZIM) -7% in Monday’s trading after Barclays downgraded shares to Underweight from Equal Weight with a $15 price target, cut from $26.50, foreseeing a global shipping downcycle in 2023-24.

Analyst Alexia Dogani said she believes the container shipping industry is entering a period of “significant oversupply” in 2023-24, estimating capacity will grow by 10%/year while demand is tracking at negative 3% compared with 2019.

Dogani thinks freight rates will go below pre-pandemic levels or, at best, back to where they were pre-pandemic given current trends, which “creates a challenging earnings outlook for the container shipping lines as unit costs are currently 45%-70% above pre-pandemic levels,” leading her to expect “EBIT losses and balance sheet re-leveraging as capex is committed and free cash flow generation is challenged.”

Zim Integrated Shipping Services (NYSE:ZIM) +5.5% in Friday’s trading after J.P. Morgan upgraded shares to Overweight from Neutral with a $30.40 price target, after the stock price has been cut in half during the past six months.

JPM’s Samuel Bland said even after forecasting materially negative cash flow during 2023-25, he still expects Zim (ZIM) will have $2.3B of net cash (ex-leases) at trough, and believes buyside expectations are more similar to his forecasts.

Despite a high level of ongoing lease debt, “we are increasingly confident that the 46 newbuild charters may turn out to be quite competitively priced,” so Bland said he excluded the leases from his valuation, which leaves the stock price looking cheap, although with high near-term sensitivity to any continuing decline in freight rates.

No changes in my positions.

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Even though ZIM is holding up ok so far, it might be time to get out of all my positions after earnings. Roughly 10% addition to fleet capacity every year for the next three years:

The overall orderbook stood at 7.69 million TEUs as of Feb. 1, just under 30% of the on-the-water fleet capacity, according to Alphaliner.

Of the total, 2.48 million TEUs (32%) was set for delivery this year, 2.95 million TEUs (38%) next year, and 2.26 million TEUs (30%) thereafter.

Most of ZIM’s ships are chartered so it can manage some of this massive margin compression by right-sizing, but with depressed rates, seems like dividends will be under even greater pressure.

Ship owners (like DAC) will deal with this by scrapping. Because of immense demand, scrapping was very slow these last two years, and can be expected to pick up as newbuilds replace old relics. However, it is not expected to be enough to make up for the impending glut.

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Thanks @The_Ni for keeping hope going with ZIM!

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ZIM earnings are Monday after next (3/13). Price action has been doing what we have expected it to do (Image 1), and should keep climbing at least till Mar 13, when earnings are. And possibly for another week and change, which is how far ex-dividend dates tend to be.

Am looking at touching $26 on or after earnings. Could go as high as $30, which is where I am leaving sell orders.

However… all good things come to an end, and ZIM is a slave to spot container rates. Those continue to bottom. (Image 2) I therefore expect prices to revert back to the $17 level, or even lower, in the roughly 30-odd days after dividend payment. Which is the end of April. Once earnings are done, I look forward to loading up on the downside.

Not now though, even though levels are lower than where we are, because IV is jacked. There is much uncertainty on this earnings in particular. ZIM will guide on their blockbuster dividend policy, which is expected to take a hit. And their future plans, around letting leases expire, but taking on LNG contracts etc.

Thus, we can expect ZIM to keep giving for one more round yet.

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Container rates dropped again last week, taking ZIM along with it on the eve of earnings.

Doubled down with a 3/17 21C/24C bullish call spread for $0.60. Still expecting dividends to be > $8 for this quarter.

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Do we believe there will be a special dividend announced in addition to the $6.40 already announced?

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Nope, this is it. ZIM had very good earnings and guided better than the dour projections from analysts:

  • ZIM Integrated Shipping Services press release (NYSE:ZIM): Q4 GAAP EPS of $3.44 beats by $1.23.
  • Revenue of $2.19B (-36.9% Y/Y) beats by $100M.
  • Adjusted EBITDA for the fourth quarter was $973 million, a year-over-year decrease of 59%;
  • Carried volume in the fourth quarter was 823 thousand TEUs, a year-over-year decrease of 4%; carried volume in the full year was 3,380 thousand TEUs, a year-over-year decrease of 3%
  • Average freight rate per TEU in the fourth quarter was $2,122, a year-over-year decrease of 42%; average freight rate per TEU in the full year was $3,240, a year-over-year increase of 16%
  • Net leverage ratio of 0.0x at December 31, 2022, similar to December 31, 2021; reached positive net cash position of $279 million as of December 31, 2022
  • 2023 Guidance: In 2023, the Company expects to generate Adjusted EBITDA of between $1.8 billion and $2.2 billion and Adjusted EBIT of between $100 to $500 million.

Up 23% since earnings 3 days ago as a result:

Folks who want to get the juicy $6.40 dividend on a ~$20 stock have to hold into April 4 though, so there’s a possibility for some continued price appreciation.

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Just closed these for $2.48 (+313%).

Still holding the 3/17 23C/23.5C call spreads bought for $0.20 - by the looks of it, the whole thing should end up ITM, so leaving up till Fri.

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Closed these out for $0.45 (+125%).

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Buy order for these hit at $0.20. Thus, kept 87% of the premium.

Was thinking of holding until after divvy payment and either sell into IV crush or hope that ZIM closes above $12.5 on the other side, but given markets and ZIM kinda wobbling, considered it prudent to be happy with this.

At this point, all options positions are closed. Just holding commons now.

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Just replying saying thanks for keeping this thread alive with relevant updates! Didn’t end up holding through earnings but sold my call options the week or so before for like a 500% gain. Best trade of the year for me so far. Cheers! Hope you kill it this year

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ZIM goes ex-dividend tomorrow. Dividends are supposed to be paid out today. Disappointed that it never went above $25…

Expecting maybe a 20%+ fall tomorrow, as the dividend amount is $6.40. And then a steady fall to the $15 level, even. IV accounts for this though, so time to load up on puts would be starting tomorrow. Will decide on strike and duration based on how ZIM opens.

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Dividend hasn’t come in, so still holding commons.

Got these bearish put spreads today:

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Looks like ZIM is following the post-dividend bleed-out pattern that has served us well so far like clockwork. Puts up nicely - April ones almost 100%, May ones about 50%. Global container rates still falling, so expecting this drop to continue for a while yet. Though should probably take some profits next week, out of prudence.

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ZIM went up 13% today for no apparent reason. Both put positions above are underwater now, versus quite green yesterday. :frowning_face: I still believe in the underlying thesis of the ticker following container rates, so added 5/19 17.5P/15P bearish put spreads for $0.45 near market close.

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ZIM continues to show surprising strength even as spot rates remain at the bottom. Contract rates showed a tiny amount of recovery.

For:

Rolled the $$ proceeds from 5/12 puts into June ones after taking a -60% hit on them:

The 4/21 will almost certainly expire worthless at this point. Holding the 5/19s as is, for now.

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