Shipping Finance

Not for the faint-hearted: wild variations in Latin American marine stocks

Share performance since 2019 ranging from -54% to +275%

When we first started looking at Latin American marine stocks in October 2019, the first question to be answered was: what is a marine stock? The region has no pure-play sector companies engaged in ocean transportation such as the ones found in New York or Oslo stock exchanges. No shipping companies with a pure tanker or bulker fleet. The only exception is Chile’s CSAV, which has morphed into a pure-play vehicle for container shipping exposure through its large stake in Hapag-Lloyd.

Our approach, then, is to include all the companies that have their primary business in any maritime sector, be it terminal operation, inland shipping, offshore support and so on. The list comprised the first 7 companies below. This time we are adding 3 more. OceanPact and Hidrovias do Brasil had their recent IPOs in Brazil’s B3 stock exchange and Trevisa Investimentos is now a specialized inland transportation company after selling the forestry division in late 2019.

For now, we decided not to include Trinidad and Tobago’s Plipdeco (TTSE:PLD) and Jamaica’s Kingston Wharves (JMSE:KW) due to limited information available on their websites.

Still, the list is to be expanded further during the next few months with the expected IPOs of inland shipping operator Navios Logistics and service provider Oceana Offshore.

With the Q420 reporting season coming to a close, there is abundant public information available. All 10 companies published their 2020 results in March, the last one being OceanPact, on the 30th.

So, how have the stocks evolved since 2019?

The graph below shows daily price at close from January 1, 2019, until March 31, 2021. The public data was extracted from Yahoo Finance. All quotes were normalized to show relative fluctuation and are compiled from local currencies without exchange rate correction.

There was a clear upsurge in the second half of 2019, which was cut short by COVID-19. Since the crash in March 2020, many of stocks have rebounded, some quite spectacularly.

Trevisa is the clear winner, although the company’s small volume and market cap makes one question the sustainability of the rally. Still, the stock’s performance might provide a strong argument for the decision to exit the forestry business.

The Brazilian company now is the only pure inland navigation listed entity in Latin America. Its subsidiary Navegação Aliança operates a fleet of 26 vessels, each between 1.4k and 5.2k dwt, in the Rio Grande do Sul waterways, southern Brazil. The company moved 3.98m tonnes in 2020, down 7.1% from 4.3m in 2019.

TMM, on the other hand, is the clear underperformer. The company has been posting weak results for many years, due to its tight connection with the oil sector. The Mexican shipping conglomerate is trying to overcome the crisis by cutting costs, selling assets and pushing diversification, but with mixed results.

José F. Serrano, chairman of Grupo TMM, said in the quarterly release that “Although 2020 was a very complicated year for Mexico, and in particular for the maritime and logistics transportation and energy industries due to the slowdown in the economy and the drop in oil prices since 2019, as well as the ongoing adverse effects of the coronavirus pandemic, Grupo TMM has shown that it has the ability to reinvent itself”.

The company posted an operating loss of 316.3m pesos and a net loss of 403m pesos in 2020. It stressed, however, that book value per share was 22 pesos at year-end, versus a share price of 3.99 at quarter-end. The stock decreased further over the next three months, closing the 1Q21 at 3.69, down 7.5% YTD (–53.8% from January 2019).

The graph is too crowded for a better view of the other 8 companies, so we will split them in two groups. First, let’s zoom in to the newcomers HBSA3 and OPCT3.

Hidrovias do Brasil completed its USD 608m IPO on September 24, 2020. OceanPact did the same on February 10, 2021, raising USD 227m. The stocks have been punished since then, with HBSA down 20% and OceanPact, 15%.

However, both companies are capitalized and have announced a string of new investments.

Besides its main current operations in bauxite cabotage and inland shipping in the southern and northern corridors, Hidrovias do Brasil is investing in the salt business in northeast Brasil, and in a leased terminal ramp-up in Santos. However, in the 4Q20 conference call, different expansion alternatives were discussed, including potential M&A transactions in the Paraná-Paraguay waterway, LNG distribution in the northern corridor and expansion in the Madeira river. The latter avenue for growth is already in motion with more concrete indications, as we previously reported.

OceanPact is on a buying spree after going public, having recently announced the acquisition of 2007-built John G McCall OSRV for USD 3,4m, and the 26-month charter with acquisition commitment for Skandi Saigon and Skandi Pacific AHTS vessels at USD 9m each. The company is also in the final round of negotiations to buy various vessels from Grupo UP.

The fleet at the end of Q420 stood at 24 vessels, with increasing exposure to the subsea market. The company posted an adjusted EBITDA of R$160.5m in 2020, up 54,9% from 2019, with a 25% EBITDA margin.

The graph below shows the “mid-pack” group of 6 companies.

CSAV’s performance is directly linked to the spectacular growth experienced by Hapag-Lloyd’s shares, which in turn is associated with the container freight rates going through the roof since mid-2020. The stock is currently the only alternative for investing in deep sea shipping in Latin America. EBITDA was USD 302.8m in 2020, with net income reaching USD 222.1m.

Log-in had a long honeymoon with the capital markets between the fateful 2018 truckers strike and the Covid crash. The stock went up 167.4% in 2018 and 168% in 2019. After a steep fall in March 2020, it recovered considerably, but still ended last year at –22.6%. The company has been increasing its owned container ship fleet through newbuildings and S&P transactions: Log-in Resiliente (acquisition, 2017), Log-In Polaris (newbuild, 2019) and Log-In Endurance (acquisition, 2020).

The latest addition is the Log-In Discovery, purchased in February at USD 20m from Norway’s Klaveness Container AS. The company posted an adjusted EBITDA of R$309.5m in 2020, a 24.7% increase from 2019.

Santos Brasil, for 8 years now, is trying to recover from the blow which was the inauguration of competing terminal BTP, backed by TIL (MSC) and APM Terminals (Maersk Group). The profitability and market share pre-2013 levels in Santos are far from the current ones, especially after the pandemic effects. The company posted a R$211.9m EBITDA in 2020 and net loss of –R$13.8m.

The main current concern for Santos Brasil is the tough negotiations for the provision of port operation services with Maersk, its main client. The previous contract, with depreciated prices, expired on March 31, 2021, but the parties are yet to reach an agreement. The market, however, seems to be sympathetic. The stock is up 58% since January 2019 and 27.4% YTD.

Wilson Sons is Brazil’s largest towage operator, with an 80-tugboat fleet. It is also the 4th largest container port operator and owner of 23 OSVs in a 50% JV with Chilean group Ultramar. The company achieved a 41.8% EBITDA margin in 2020, at USD 141,6m. Net profit stood at USD 20.5m, –35.7% YoY.

The towage division recently approved the construction of six new 80-tonne tugboats to be delivered by the group’s shipyard between 2022 and 2024. The offshore division, however, remains weak, with the support bases and fleet operating well below capacity.

After acquiring Boskalis’ tug operations in Canada, Mexico, Panama and Brazil in 2019, SAAM announced the acquisition of 70% of Intertug last January for USD 49.7m. SAAM now operates more than 170 tugs that perform 104k maneuvers per year in 70 ports, thus being the leader in the Americas towage business.

The Chilean company has increased the consolidated EBITDA margin continually since 2016, from 25% to 36% in 2020.

Grupo Empresas Navieras (GEN) is a rather complex and diversified entity, controlling more than 100 companies in 20 countries. The times of deep-sea shipping are gone ever since CCNI was sold to Hamburg Süd in 2015. Since then, the majority of the revenue comes from the logistics and shipping agency business, handled by Agunsa.

In 2020, shipping accounted for only 16% of revenue, and port operations, for another 16%. However, their margins are higher, meaning shipping accounts for 47% of the group’s EBITDA and port management, for 24%. GEN’s main investments in the port business are Portuaria Cabo Froward and other stakes in various ports along the WCSA.

In shipping, the company is everywhere: tugboats, ferries, container ships, tankers, bulkers and wellboats. Consolidated EBITDA reached USD 128m in 2020, with a 22% margin. The market seems unimpressed: the stock is down –14.33% since January 2019 and –3% YTD.

So there it is. Of the around 1,500 equities traded in Latin America, only 10 are maritime companies. They are a rare animal, and a rather wild one. But for the ones interested in becoming indirect shipowners or terminal owners, there is still plenty of opportunity to try to ride the beasts.

Disclaimer: The above article is for informational purposes only. We do not offer financial advice nor any valuation assessment, endorsement or recommendation to buy or sell any financial instruments or securities in any jurisdiction. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor.

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