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Does Zim management know something the market doesnt?
"Ocean carriers’ exorbitant profits are at risk as a sharp drop in spot rates prompts a review of contract rates.. As spot rates in the trade between the world’s two largest economies continue to fall, shippers are pushing carriers to renegotiate long-term fixed contract rates, upsetting shipping companies that have grown accustomed to having the upper hand in rate negotiations recently. two years."
Does ZIM Management Knows Something The Market Doesn't? (NYSE:ZIM) - Marcosbistro
"We think it’s likely that the stock price risks heading back to $10 with cash flow generation rapidly declining as well, greatly reducing dividends if not eliminating them altogether next year.
So, we think the shares are still pretty risky here, despite the plunge they already went through."
However, management actually confirmed their FY22 guidance and is (or at least was, at their Q2CC) much less pessimistic in their outlook and even increased the dividend payout ratio.
Apart from keeping in mind that the guidance is for H2/22 only, there are several possible explanations for this:
- Management provided the guidance in mid-August; things might have gotten considerably worse compared to the ‘gradual’ decline in rates they expected for H2/22.
- Management expects a recovery in trading volume in H2.
- Profits are held up by their longer-term contracts, which are twice the level of last year.
- Costs (fuel, charter rates, new more efficient vessels replacing less efficient older ones) are also likely to come down.
We think the first and third are by far the most important, but perhaps management knows something that the market doesn’t, perhaps they’ll be able to maintain some of their long-term contract terms beyond this year at present terms.
