The Baltic and International Maritime Council (BIMCO) has expressed confidence about the outlook of the shipping industry in 2013. This is despite the challenge of oversupply of tonnage. With the world trade growing by 3.3% in 2012 and expected growth of 4.3% & 4.9% in 2013 & 2014, a turnaround in macroeconomic terms is foreseen (source: UN World Economic Situation & Prospects 2013). This optimism is supported by the fact that the large economies like the US are showing signs of bottoming out. Further, the LNG trade in the world is expected to rise over the next few years backed by improving demand for the commodity. Several new LNG export facilities are in the development / planning stage in the US, Australia, Indonesia and Papua New Guinea to take advantage of the expected increase in demand (source: hellenicshippingnews.com). Similar upward bias is expected in the oil tanker business with firm oil price trend over the next few decades. BIMCO is also positive about the container freight market as the U.S. demand for containerized imports is picking up. The container trade is also expected to grow with the improvement in macro fundamentals. All this is expected to firm up freight rates in the shipping market over the next few years. In addition, the shipping companies are strongly focusing on achieving better fuel efficiencies to reduce operational costs. This will help them protect their margins in view of the increasing bunker costs. Considering these aspects, it is advisable to consider some stocks from the shipping sector for long term growth and dividend income prospects.
Golar LNG (NYSE: GLNG) is one of the world’s largest independent owner and operator of LNG carriers. The company has over 30 years experience and has a strategic objective to become an integrated midstream player in the LNG industry. With market capitalization of $3.09B, the TTM revenue (Q3 2012) was $392M with a net income of $113M (NPM of 28.71%). The figures for 2009 were $217M and $15M. This implies a growth of 81% and 650% in revenue and net income over 3 years and significant expansion on the margin front. The P/E ratio is 27.5 and cash on books on 30th September 2012 was $118M. The Dividend has increased from 1.15 in 2011 to 1.60 in 2012, a growth of 39%. The yield is 5.1% (5 year average of 8.4%) and, barring 2009, GLNG has been paying dividends since 2006 and the payout ratio is 181%.
Teekay LNG Partners L.P. (NYSE: TGP) is the world’s third largest independent owner and operator of LNG carriers, providing LNG, LPG and crude oil marine transportation services primarily under long-term, fixed-rate charter contracts. It operates in the liquefied gas and conventional tanker segments. The company has a market cap of $2.74B and the 2012 revenue / net income was $392M & $139M respectively (NPM of 35%). This is a healthy growth of 14% & 70% over the corresponding 2009 figures of $343M & $82M for revenue and net income respectively. The margins have also improved substantially from 24% in 2009. The P/E ratio is 18.3 and cash on books on 31st December 2012 was $113M. TGP has consistently paid increasing dividends since 2005 with the yield for 2012 being 6.4% (5 year average of 9%). The dividend increased marginally from $2.52 in 2011 to $2.61 in 2012 but the payout ratio for the company is 143%.
Costamare (NYSE: CMRE) provides container ships on charter and has been in the shipping industry for around 4 decades. It is a world leader in this segment and has a fleet of 57 container ships with 10 new builds on order. It has a relatively smaller market cap of $1.1B and the revenues for 2012 were $386M with net income of $81M (NPM of 21%). Corresponding figures for 2009 were around $400M and $117M respectively indicating a decline over the three years. The P/E ratio is 12.5 and cash on books on 31st December 2012 was $267M. The company has been paying dividends since 2011, when it paid $1.02 per share. In 2012 it paid $1.08, an increase of 5.8%. The payout ratio is 90% with the yield being in excess of 7%.
It is important to note, however, that all these companies operate in a highly capital intensive environment and hence the debt to equity ratio is very high. This makes them extra-vulnerable to adverse macro-economic environment. Amongst the three stocks, Golar LNG scores on the dividend growth front and Teekay LNG Partners is comparatively better on the valuation front with a lower P/E. Costamare has the lowest P/E, is comfortably placed on the liquidity front and has the lowest payout ratio.
Stock symbol(s): CMRE,GLNG,TGP
|TEEKAY LNG PARTNERS LP