Container freight bound for the US (leaving port of origin) have now dropped below summer 2019 levels. It will take a few months before this shows up in US import numbers, but the outlook is very negative (note: this is supposed to be peak season).
(Source)
This should make rates plummet more. Which it is, already.
Does not bode well for ZIM.
As freight rates plummet (9% in the last week), so does ZIM:
ZIM is expected to pay out $13.28 in dividends still, in Q3 and Q4. About 1/3 of that for Q3, and the remaining in Q4. That’s a 54% return in two quarters, and > 100% yields in annualized terms, given the current price of $24.87.
There is no real support here, so will just have to let it fall until it stops.
No respite in container rates, still. Especially one of the ones that affects ZIM the most.
https://twitter.com/FreightAlley/status/1578352289211121670
As well as for the global average:
ZIM is out of its doghouse, but its not clear if it’ll fly yet. Will wait till end of next week to initiate a position, as CPI will determine the market, and ZIM will likely move with the market as much as anything else.
A couple interesting charts from a recent Bloomberg article:
Supply Chain ‘Normal’ Appears on Horizon, With Sights Set on March
There has been an uptick in cancelled sailings these past couple months.
The forecast for demand looks pretty weak…
Just a quick update on ZIM - even though it’s outside its “window of weakness” and we are approaching earnings, it looks like this time is different. Reason is weaker container-based movement, as noted by @TheMadBeaker above, and as reflected in the freight rates (below), which are still falling.
Q3 dividend would have been modest, so staying out of this trade for now. If ZIM reaffirms guidance for 2023, then we could revisit this play again for Q4 earnings.
ZIM’s share price remained a slave to falling container fright rates, and showed very weak pre-earnings appreciation. Dividend was $2.95 for Q3, which is still quite respectable considering a $20 share price.
A prior dividend calculation is here, which is still mostly correct:
Am still expecting a nice make-up dividend in around March 2023. Was supposed to be around $10, but given macro conditions, ZIM might hold on to some more cash. Still, a $5-$8 dividend on a $20 stock is very nice.
Having said that, not going to double down on the position I have in commons. There seems to be this one-month wide window of weakness after dividends are paid. Ex-dividend date was today, so we’re probably looking at weakness into Jan 2023. Will consider loading up some more, then.
The one confounding factor could still be freight rates. They are at pre-pandemic levels already and port congestions are no longer a thing, so hard to see how they get “worse” for the stock, but this gives us another month to keep an eye on things before considering a play for the Q4 dividends that will be paid out in Mar 2023.
Incidentally, you’ll see articles quoting ZIM dividend yield at 50-150% - these are all looking at the past, and the future will decidedly not look like that. This March dividend is the last remnant of a very, very good time we are unlikely to see in a long while.
Making no changes current holdings. Will update right after New Years.
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 (!).
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:
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.
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.
Update on ZIM:
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.
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.
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.
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.
Do we believe there will be a special dividend announced in addition to the $6.40 already announced?
Nope, this is it. ZIM had very good earnings and guided better than the dour projections from analysts:
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.
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.
