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Original Post
Claim this username to collect earnings from this post, and the portfolio!
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.
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:
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
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:
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.
Historical & Projected Financials
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.
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
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.
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:
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...
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: