ZIM DD For Retards Who Can't Read Good and Want to Learn to Do Other Stuff Good Too

Quick Note: I’m going to be very straight-forward and use a format that is close to industry standard and leaves out all the fluff that others include in their DD because I know you won’t read it otherwise. Since I know many of you retards can't handle this level of analysis, I've included numerous links for reference in an attempt to create one goddamn wrinkle in your silky smooth brain. TL;DR - PT of $104 w/expected Div of $20+ for 100% 1-Yr Gains ​ THE STRATEGY YIELD PLAY WITH SOLID POTENTIAL UPSIDE IN STOCK PRICE Hold the shares, collect 30-50% annualized dividend, collect massive premiums from covered calls, and leave some shares uncovered in case price soars. If you’re poor or lost most of your money through this recent dip, buy and hold shares until management signals an end to high dividend distributions or the supply chain disruption abates, whichever occurs first. My Position: 1800 shares 6 ITM Covered Calls S-50 6 ATM Covered Calls S-58 600 shares uncovered, exposed to potential upside ​ BUSINESS OVERVIEW What does ZIM do? - ZIM is a large marine shipping company that delivers products around the globe via leased and to a lesser extent, owned charter ships. How does ZIM make money? - ZIM generates revenue by charging freight fees (mostly at market rates, for now) for marine transportation of goods and materials and nets a profit after paying costs related to mid to long term leased and owned charter ships, fuel costs, and labor. Recent Developments Aug 2021 - ZIM began to distribute dividends on a quarterly basis equal to 20% of net income. In addition, the Company intends to distribute a special dividend once a year which will bring the total annualized dividend payout to 30-50% of net income. On Jan 21, the CEO affirmed this policy and mentioned that the board will \consider* a share buyback program.* Jan 2022 - The CEO announced a slight shift in strategy to lock in 12-36 month freight contracts related to US-Asia trade routes assuming contract rates are reasonable compared to expected future freight rates. These contracts will be based on demand (order size) and customer creditworthiness. ZIM is planning to apply this strategy to a number of charter ships it currently leases as well. The Company's goal is to lock in a "spread" on up to 50% of its total trade volumes which will allow ZIM to maintain a moderately high level of profitability should freight rates begin to fall while still capitalizing on inflated spot rates relating to other trade routes in the meantime. The Ongoing Supply Chain Disruption I'm going to assume everyone here knows there are substantial issues with the global supply chain. Thanks to the current bottleneck, freight rates are sky high and ZIM and other marine shippers are generating record profits. To be brief, the key factors driving the disruption are: Record high demand (particularly from the U.S.) resulting from massive stimulus in 2020 Slow supply catch-up given a near total shut-down of the global supply chain in 2020 Global dependence on a relatively small number of overseas manufacturers Labor shortages, port congestion, and poor logistics throughout the global supply chain network Lack of effective global policies in place to help actively alleviate the disruption For those who are not savvy on the subject, there is much discussion to be had on the supply chain bottleneck so I've included additional sources for you to look into at the end of this DD. ​ FINANCIAL ANALYSIS Historical & Projected Financials Observe strong Net Income projections but also Free Cash Flow to better reflect how much cash may be distributed to ZIM's 118.6mln shareholders. I'm copy/pasting estimates as I mostly agree with Bloomberg especially on the 2021 estimates as those should be quite accurate given how close we are to FYE 2021. Effects of the supply chain disruption are expected to persist through the rest of 2022 but Bloomberg is pricing in an inevitable decrease in freight rates which will lower ZIM's margins. This is evidenced by the peak in margins expected for FYE 2021 followed by a reversion to levels reported in the LTM Sep 30, 2021 financials: amts in USD Millions LTM SEP 30, 2021 FYE 2021 Est. FYE 2022 Est. Revenue $8,623 $10,538 $10,487 EBITDA / Margin % $4,455 / 51.7% $6,368 / 60.4% $5,761 / 54.9% Free Cash Flow / % $2,575 / 29.9% $3,967 / 37.7% $3,411 / 32.5% Note that while margins may at some point fall to levels seen pre 2021, the purpose of this trade is to collect a very high yield as long as it's offered to shareholders (until the global supply chain normalizes) while enjoying some substantial potential upside in the stock price based on valuations of ZIM's industry peers. ​ MULTIPLES ANALYSIS The metrics shown below should be considered the most relevant when conducting a multiples analysis. For the sake of conciseness of this DD, if you want to know why enterprise value and free cash flow ratios are used versus the frequently referenced P/E, P/S, etc, see the references I've included at the end. METRIC LTM SEP 30, 2021 Est. FYE DEC 31, 2021 EV/Revenue 1.1x 0.4x EV/EBITDA 2.1x 0.6x Debt/EBITDA 0.6x 0.4x Net Debt/EBITDA 0.1x No Net Debt EV/FCF (preferred to P/E) 2.1x 0.9x FCF/EV (FCF Yield) 47.1% 107.9% Assumptions for FYE Dec 31, 2021 Bloomberg estimates for Revenue, EBITDA, and FCF are used No change in debt for simplicity (some debt will surely be paid down but you can see why it doesn't matter for the observed period) Enterprise Value assumes no change in stock price For the uninitiated, these financials and multiples are OUTSTANDING for a marine shipping company or any company for that matter. The FCF Yield (FCF/EV - my preferred substitute to P/E) demonstrates how much actual cash (versus reported Net Income) will be available to shareholders relative to the enterprise value of the company (versus P or market cap which doesn't account for debt). Based on this metric, we can reasonably conclude that ZIM is considerably undervalued even compared to its peers. Speaking of peers, let's see how ZIM's financial strength holds up against the rest of the industry. Comparables Bloomberg's comparables analysis uses blended multiples which reflect a combination of historical and forward expected earnings. Aside from a relatively high P/B (mostly due to ZIM's 215% ROE for LTM Sep 30, 2021), ZIM's multiples are clearly superior to its comps. If we apply the means of key multiples (circled above), EV/Revenue, EV/EBITDA, and P/BV to ZIM's valuation, we can estimate a more appropriate stock price than what it's currently trading at. Note that while using P/BV seems to only serve the purpose of lowering ZIM's price target, let's assume there is a possibility ZIM's value could revert to the mean P/BV of the industry and consider its use as an attempt to be more conservative when estimating the stock price. I would typically use FCF/EV as well but the difference between ZIM and its comps is laughable and would only create an unrealistic amount of skew in the multiples valuation (as if that isn't already apparent in the figures below). VALUATION METHOD Price Target Applied Weighting EV/Revenue (3.6x mean) $259 30% EV/EBITDA (5.5x mean) $204 30% P/BV (4.0x mean) $23 40% FINAL PRICE TARGET $148 100% THAT'S A BIT RIDICULOUS. So let's attempt to be even more conservative and consider the possibility that the supply chain bottleneck diminishes sooner than expected, resulting in a lower expected cash flow for 2022. To be very conservative, we'll apply a 30% margin of safety: Multiples based Price Target w/30% MoS: $103.60 Finally, let's look at the expected dividend and include that in our calculation of potential profit. We'll use a sensitivity analysis to see what we can expect based on estimated profits and the proposed 30-50% annualized dividend: https://preview.redd.it/4ym7od66ode81.png?width=726&format=png&auto=webp&s=ec84017b63187935abfcce4cad498702d99792fe Bloomberg's estimated Net Income (top left of each chart) is multiplied by the percentage of what is actually generated. This is then multiplied by the proposed dividend payout as a percentage and finally divided by the total 118.6mln shares outstanding. Based on results in line with Bloomberg's estimates and accounting for the $2 and $2.5 dividend payments already distributed, we can expect the 4Q dividend to be anywhere from $3 to $14 per share. As I prefer to be conservative, let's assume the actual 4Q dividend will be close to $11 at the 30% payout ratio. Let's assume the same for the current year and we can expect total dividends for 2022 to amount to $9-10 per share... Expected 4Q + FY 2022 Div per Share: $20 or more RISKS Easing Supply Chain Disruption Over Time (inevitable at some point) - Estimated timeframe unknown but expected by the industry to last until at least 2023. Will result in decreasing freight rates and lower profits for ZIM. Substantial Drop in Demand in 2022 - Could result from drop in U.S. consumer purchasing power (which remains high despite inflation) or a global economic crisis. Active Clearing of Distribution Bottleneck (highly unlikely) - May result from efficient domestic and foreign policy (lmao) addressing current congestion of marine shipping and land transportation of goods. ​ TL;DR - PT of $104 w/expected Div of $20+ for 100% 1-Yr Gains The supply chain bottleneck will persist for another year ZIM will yield massive profits on share upside and 30-50% dividend payout Recommended trade based on risk tolerance: RISK TOLERANCE STRATEGY Classical Economist Boomer Virgin Buy & Hold Shares w/100% ATM Covered Calls Game Recognize Game Buy & Hold Shares, OTM CCs on 33-50% of pos Poor Retard Margin Called Last Week Just fkn buy the shares Now buy some shares, wait for fat profits, relax, sit back, and listen to some good music like this because apparently that makes the markets go up. **EDIT - Thanks to u/cashbackpal for reminding me about the 25% foreign div tax. Hold the shares in a taxable account so that you can reclaim a portion of this as a foreigh tax credit. ​ Sources: The Hill - What you need to know about the supply chain bottlenecks JOC.com on spot rates CNBC Interview of Mandarin Shipping CEO on Supply Chain Disruption Timeline Contributing Factors to the Supply Chain Disruption (from June 2021) A previous DD post from a fellow ZIM bull (kudos to u/Thereian) FCF/EV - The Best Predictor of Stock Price Performance The Power of Free Cash Flow Yield Free Cash Flow to Enterprise Value Backtest (2000-2015) Supply Chain Bottlenecks and Inflation: The Role of Semiconductors

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ZIM DD For Retards Who Can't Read Good and Want to Learn to Do Other Stuff Good Too

bullish

Quick Note: I'm going to be very straight-forward and use a format that is close to industry standard and leaves out all the fluff that others include in their DD because I know you won't read it otherwise. Since I know many of you retards can't handle this level of analysis, I've included numerous links for reference in an attempt to create one goddamn wrinkle in your silky smooth brain.

TL;DR - PT of $104 w/expected Div of $20+ for 100% 1-Yr Gains

THE STRATEGY

YIELD PLAY WITH SOLID POTENTIAL UPSIDE IN STOCK PRICE

Hold the shares, collect 30-50% annualized dividend, collect massive premiums from covered calls, and leave some shares uncovered in case price soars. If you're poor or lost most of your money through this recent dip, buy and hold shares until management signals an end to high dividend distributions or the supply chain disruption abates, whichever occurs first.

My Position:

  • 1800 shares
  • 6 ITM Covered Calls S-50
  • 6 ATM Covered Calls S-58
  • 600 shares uncovered, exposed to potential upside

BUSINESS OVERVIEW

What does ZIM do? - ZIM is a large marine shipping company that delivers products around the globe via leased and to a lesser extent, owned charter ships.

How does ZIM make money? - ZIM generates revenue by charging freight fees (mostly at market rates, for now) for marine transportation of goods and materials and nets a profit after paying costs related to mid to long term leased and owned charter ships, fuel costs, and labor.

Recent Developments

  • Aug 2021 - ZIM began to distribute dividends on a quarterly basis equal to 20% of net income. In addition, the Company intends to distribute a special dividend once a year which will bring the total annualized dividend payout to 30-50% of net income. On Jan 21, the CEO affirmed this policy and mentioned that the board will \consider* a share buyback program.*
  • Jan 2022 - The CEO announced a slight shift in strategy to lock in 12-36 month freight contracts related to US-Asia trade routes assuming contract rates are reasonable compared to expected future freight rates. These contracts will be based on demand (order size) and customer creditworthiness. ZIM is planning to apply this strategy to a number of charter ships it currently leases as well. The Company's goal is to lock in a "spread" on up to 50% of its total trade volumes which will allow ZIM to maintain a moderately high level of profitability should freight rates begin to fall while still capitalizing on inflated spot rates relating to other trade routes in the meantime.

The Ongoing Supply Chain Disruption

I'm going to assume everyone here knows there are substantial issues with the global supply chain. Thanks to the current bottleneck, freight rates are sky high and ZIM and other marine shippers are generating record profits. To be brief, the key factors driving the disruption are:

  • Record high demand (particularly from the U.S.) resulting from massive stimulus in 2020
  • Slow supply catch-up given a near total shut-down of the global supply chain in 2020
  • Global dependence on a relatively small number of overseas manufacturers
  • Labor shortages, port congestion, and poor logistics throughout the global supply chain network
  • Lack of effective global policies in place to help actively alleviate the disruption

For those who are not savvy on the subject, there is much discussion to be had on the supply chain bottleneck so I've included additional sources for you to look into at the end of this DD.

FINANCIAL ANALYSIS

Historical & Projected Financials

Observe strong Net Income projections but also Free Cash Flow to better reflect how much cash may be distributed to ZIM's 118.6mln shareholders.

I'm copy/pasting estimates as I mostly agree with Bloomberg especially on the 2021 estimates as those should be quite accurate given how close we are to FYE 2021. Effects of the supply chain disruption are expected to persist through the rest of 2022 but Bloomberg is pricing in an inevitable decrease in freight rates which will lower ZIM's margins. This is evidenced by the peak in margins expected for FYE 2021 followed by a reversion to levels reported in the LTM Sep 30, 2021 financials:

amts in USD Millions LTM SEP 30, 2021 FYE 2021 Est. FYE 2022 Est.
Revenue $8,623 $10,538 $10,487
EBITDA / Margin % $4,455 / 51.7% $6,368 / 60.4% $5,761 / 54.9%
Free Cash Flow / % $2,575 / 29.9% $3,967 / 37.7% $3,411 / 32.5%

Note that while margins may at some point fall to levels seen pre 2021, the purpose of this trade is to collect a very high yield as long as it's offered to shareholders (until the global supply chain normalizes) while enjoying some substantial potential upside in the stock price based on valuations of ZIM's industry peers.

MULTIPLES ANALYSIS

The metrics shown below should be considered the most relevant when conducting a multiples analysis. For the sake of conciseness of this DD, if you want to know why enterprise value and free cash flow ratios are used versus the frequently referenced P/E, P/S, etc, see the references I've included at the end.

METRIC LTM SEP 30, 2021 Est. FYE DEC 31, 2021
EV/Revenue 1.1x 0.4x
EV/EBITDA 2.1x 0.6x
Debt/EBITDA 0.6x 0.4x
Net Debt/EBITDA 0.1x No Net Debt
EV/FCF (preferred to P/E) 2.1x 0.9x
FCF/EV (FCF Yield) 47.1% 107.9%

Assumptions for FYE Dec 31, 2021

  • Bloomberg estimates for Revenue, EBITDA, and FCF are used
  • No change in debt for simplicity (some debt will surely be paid down but you can see why it doesn't matter for the observed period)
  • Enterprise Value assumes no change in stock price

For the uninitiated, these financials and multiples are OUTSTANDING for a marine shipping company or any company for that matter. The FCF Yield (FCF/EV - my preferred substitute to P/E) demonstrates how much actual cash (versus reported Net Income) will be available to shareholders relative to the enterprise value of the company (versus P or market cap which doesn't account for debt). Based on this metric, we can reasonably conclude that ZIM is considerably undervalued even compared to its peers.

Speaking of peers, let's see how ZIM's financial strength holds up against the rest of the industry.

Comparables

Bloomberg's comparables analysis uses blended multiples which reflect a combination of historical and forward expected earnings.

Aside from a relatively high P/B (mostly due to ZIM's 215% ROE for LTM Sep 30, 2021), ZIM's multiples are clearly superior to its comps. If we apply the means of key multiples (circled above), EV/Revenue, EV/EBITDA, and P/BV to ZIM's valuation, we can estimate a more appropriate stock price than what it's currently trading at. Note that while using P/BV seems to only serve the purpose of lowering ZIM's price target, let's assume there is a possibility ZIM's value could revert to the mean P/BV of the industry and consider its use as an attempt to be more conservative when estimating the stock price. I would typically use FCF/EV as well but the difference between ZIM and its comps is laughable and would only create an unrealistic amount of skew in the multiples valuation (as if that isn't already apparent in the figures below).

VALUATION METHOD Price Target Applied Weighting
EV/Revenue (3.6x mean) $259 30%
EV/EBITDA (5.5x mean) $204 30%
P/BV (4.0x mean) $23 40%
FINAL PRICE TARGET $148 100%

THAT'S A BIT RIDICULOUS. So let's attempt to be even more conservative and consider the possibility that the supply chain bottleneck diminishes sooner than expected, resulting in a lower expected cash flow for 2022. To be very conservative, we'll apply a 30% margin of safety:

Multiples based Price Target w/30% MoS: $103.60

Finally, let's look at the expected dividend and include that in our calculation of potential profit. We'll use a sensitivity analysis to see what we can expect based on estimated profits and the proposed 30-50% annualized dividend:



Bloomberg's estimated Net Income (top left of each chart) is multiplied by the percentage of what is actually generated. This is then multiplied by the proposed dividend payout as a percentage and finally divided by the total 118.6mln shares outstanding.

Based on results in line with Bloomberg's estimates and accounting for the $2 and $2.5 dividend payments already distributed, we can expect the 4Q dividend to be anywhere from $3 to $14 per share. As I prefer to be conservative, let's assume the actual 4Q dividend will be close to $11 at the 30% payout ratio. Let's assume the same for the current year and we can expect total dividends for 2022 to amount to $9-10 per share...

Expected 4Q + FY 2022 Div per Share: $20 or more

RISKS

  • Easing Supply Chain Disruption Over Time (inevitable at some point) - Estimated timeframe unknown but expected by the industry to last until at least 2023. Will result in decreasing freight rates and lower profits for ZIM.
  • Substantial Drop in Demand in 2022 - Could result from drop in U.S. consumer purchasing power (which remains high despite inflation) or a global economic crisis.
  • Active Clearing of Distribution Bottleneck (highly unlikely) - May result from efficient domestic and foreign policy (lmao) addressing current congestion of marine shipping and land transportation of goods.

TL;DR - PT of $104 w/expected Div of $20+ for 100% 1-Yr Gains

  • The supply chain bottleneck will persist for another year
  • ZIM will yield massive profits on share upside and 30-50% dividend payout
  • Recommended trade based on risk tolerance:
RISK TOLERANCE STRATEGY
Classical Economist Boomer Virgin Buy & Hold Shares w/100% ATM Covered Calls
Game Recognize Game Buy & Hold Shares, OTM CCs on 33-50% of pos
Poor Retard Margin Called Last Week Just fkn buy the shares

Now buy some shares, wait for fat profits, relax, sit back, and listen to some good music like this because apparently that makes the markets go up.

**EDIT - Thanks to u/cashbackpal for reminding me about the 25% foreign div tax. Hold the shares in a taxable account so that you can reclaim a portion of this as a foreigh tax credit.

Sources:

read-time
7 min
104.00
Target Price
8/ 10
Confidence
1-3 Years
Timeframe
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Earnings Release
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News
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SEC
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