Value Investor's Edge Live #38: Global Ship Lease: Racking Up Container Profits

Marketplace Roundtable

The CEO and CCO of Global Ship Lease (GSL), Ian Webber and Tom Lister, joined J Mintzmyer's Value Investor's Edge Live on 11 June, 2021, to discuss the containership transport markets and forward opportunities in the markets. We also covered GSL's major acquisition of 12 containerships, which took place in early June. GSL guided for at least $1.09 in annualized EPS contribution from this latest purchase. However, with containership rates continuing to surge, I suspect GSL guided too low on the first deal and I would anticipate a minimum of $1.50 in annualized earnings contribution from those ships once they are fully delivered by the end of Q3 2021.
This interview and discussion of the underlying containership markets is relevant for anyone with interest in GSL or in related containership shipping companies, including Atlas Corp (ATCO), Capital Partners (CPLP), Costamare (CMRE), Danaos Corp (DAC), Euroseas (ESEA), Matson (MATX), MPC Containers (OTCPK:MPZZF), Navios Partners (NMM), SFL Corp (SFL), and Zim Integrated Shipping (ZIM).
Surging Containership RatesContainership leasing rates have been on a surge over the past year and we have seen subsequent all-time record highs set for each of the past six weeks. The latest Harpex Index is shown below, which reflects the benchmark rates for one-year charters:
Source: Harper Petersen, Harpex Index, 5-Year Chart
Massive Earnings Growth, Stock Stuck in Neutral?Subsequent to this interview (which was conducted on 11 June), Global Ship Lease announced yet another vessel acquisition deal on 16 June, which added four more vessels to their fleet. GSL anticipates the four latest ships will add an additional $0.88 in annual EPS, which is in addition to the $1.09 they guided from the first major acquisition in early June (but I expect closer to $1.50 contribution). Altogether, these latest two deals in June alone should add up to $2.40/sh in annualized earnings potential on top of GSL's organic fleet contribution levels.
However, despite this fleet and earnings growth, GSL stock has been stuck in neutral over the past six months, up just 15% since January and down more than 20% from peaks in mid-June. This may present a phenomenal opportunity for investors who are interested in this sector, but either way, I hope the interview will help add additional color about this firm.
Source: Google Finance, GSL 6-month chart, 8 July 2021
Topics Covered
(2:00) What is driving the surge in rates, how sustainable are they?
(6:30) What charter durations are preferable? Discount rates?
(9:00) Any potential for forward fixtures into 2022?
(12:30) What assumptions play into the economics of the new purchase?
(18:45) Target leverage for the latest acquisition?
(20:45) Any appetite for further vessel acquisition deals?
(24:00) Not many public company buyers… Private asset buyers?
(26:30) Split between charter-free values and charter discounts?
(30:15) Economic tradeoff between secondhand and newbuilds?
(33:00) Do smaller and midsize ships play a viable role in the future?
(38:15) Will environmental regulations threaten middleaged tonnage?
(47:45) What is your target balance sheet leverage?
(51:00) GSL has a higher average cost of debt: savings potential?
(55:30) Any appetite for more preferred equity?
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