2024-01-07 09:15:00 ET
Summary
- Global Ship Lease has long-term fixed charter rates, providing income investors with visibility into future dividends.
- GSL focuses on mid-size container ships, which make up over 70% of global containerized trade volumes.
- GSL offers an attractive dividend yield of more than 7%, has greatly improved its debt leverage, and is undervalued vs. its industry.
Looking for income from marine shipping? Spot rates go up, rates go down, but some shipping companies lock in long-term fixed charter rates, which gives income investors more visibility into future dividends.
Global Ship Lease ( GSL ) is one of those companies. It had ~2 years of contract cover for its fleet, worth $1.8B, as of 9/30/24.
Company Profile:
GSL is a container ship owner, leasing ships to container shipping companies under industry-standard, fixed-rate time charters. The Company is a Marshall Islands Corporation, with offices in London and Athens, and has been listed on the New York Stock Exchange since August 15, 2008.
GSL focuses on mid-size Post-Panamax and smaller container ships, the workhorses of the global fleet, which tend to serve the faster-growing non-Mainlane and intra-regional trades collectively representing over 70% of global containerized trade volumes. It owns 68 container ships, ranging from 2,207 to 11,040 TEU, with an aggregate capacity of 341,230 TEU. 36 ships are wide-beam Post-Panamax. (GSL site)
GSL's customer base is dominated by 4 big names - Hapag-LLoyd, at 28%; CMA CGM, at 26%; Maersk, at 17%; and Zim, at 14%.
GSL site
Management added ~$225M in contracted revenues in Q1-3 2023, at favorable long-term charter rates, which benefited from high spot rates.
Industry Status:
GSL's focus on sub-10K TEU vessels is supported by an aging world fleet. Management estimates that the supply of these smaller vessels will only grow by 1.2% through 2027, if 25-year-old vessels are scrapped:
GSL site
Management offered three scenarios for forward earnings in 2024.
At prevailing spot rates, the small amount of spot revenues GSL will have in 2024 would be $82M. At 15-year averages, it'd increase to $93M, and at 10-year averages, it's increased to $106M.
That's ~15% of what GSL already has locked in via its contracted revenues of $633M in 2024, which management estimates will generate $509 - $533M in adjusted EBITDA.
GSL site
Earnings:
Q3 '23: Operating revenue was stable, while net income slipped 7.7%, due to higher planned offhire - scheduled drydock days of 191, vs. 47 in Q3 '22. Fleet utilization was 96.1%, vs. 97.5% in Q3 '22. Reported EPS was $2.33, down 2%, while normalized EPS was down 4%.
However, adjusted EBITDA rose 9.37%, while interest expense actually fell 28%. The share buyback program brought the share count down by ~4%.
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Q1-3 '23: Operating revenue rose 3%, with net income up over 9%, and diluted EPS rising ~13%. Normalized EPS rose 8.5%; and adjusted EBITDA was up over 12%.
Interest expense fell 48%, and the share count fell 3.2%.
Management signed 18 new charters or charter extensions, adding $225M of contracted revenues in Q1-3 '23.
2022 had major growth, due to GSL adding new ships
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Dividends:
The roaring spot market enabled GSL to begin paying dividends in Q2 '21, starting at $.25/quarter. Management raised the quarterly payout from $.25 to $.375 in Q2 2022, where it has remained.
At its 1/4/2024 closing price of $20.80, GSL yielded 7.21%. It should go ex-dividend next on ~2/21/24, with a ~3/6/24 pay date.
GSL also has a share repurchase program - During the nine months ended Sept. 30, 2023, it repurchased an aggregate of 1,154,721 Class A common shares, worth ~$22M, at repurchase prices ranging from between $16.12 and $18.69 per share, with an average price of $17.68.
There's $38 million of capacity remaining in the buyback program.
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GSL has an attractive EPS dividend payout ratio - it was 48.28% in Q1-3 '23. EPS includes a lot of non-cash Depreciation & Amortization, $1.90/share in Q1-3 2023. Adding that non-cash amount back into the mix reveals an EBDA Payout ratio of just 26.6%:
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Taxes:
GSL issues a 1099 - 100% of its 2022 distributions were qualified. "Distributions we pay to U.S. unitholders will be treated as a dividend for U.S. federal income tax purposes to the extent the distributions come from earnings and profits (E&P) and as a non-dividend distribution or a return of capital (ROC) to the extent the distributions exceed E&P." (GSL site)
Profitability and Leverage:
ROA rose slightly, and EBITDA Margin gained nearly 400 basis points, while ROE slipped a bit over the past year. Debt/equity improved, dropping to 0.76X, as did net debt/EBITDA, which was 1.76X as of 9/30/23.
EBITDA/interest coverage doubled, and is much higher than the marine shipping industry's 7.68X average. GSL's debt leverage ratios are now also more conservative than industry averages.
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Management reduced gross debt to $874.3M as of 9/30/23, vs. $999.5M at 9/30/2022, despite adding $76M new debt for the newly acquired vessels. Its 2023 year end debt target is $823M, implying an additional $51M in debt reduction in Q4 '23.
GSL site
Debt and Liquidity:
GSL has the floating interest rates on its debt hedged through 2026, with no refinance needs before 2026. GSL closed Q3 '23 with $267.3M in cash, $155.3M of which is restricted for debt covenants.
GSL site
Performance:
GSL outperformed the S&P over the past month, quarter, year, and year to date. It slightly underperformed its industry over the past quarter and year, but has outperformed it over the past month. GSL and the marine shipping industry have outperformed the market in this first week of 2024.
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Analysts' Price Targets:
At its $20.80 1/4/24 closing price, GSL was ~17% below Wall Street analysts' average price target of $25.00, and 45% below their $38.00 highest target.
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Valuations:
GSL is very undervalued vs. its industry, with trailing and forward P/Es that are mere fractions of industry average valuations. It's also selling for just 67% of its book value, and has cheaper P/sales and EV/EBITDA valuations.
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Parting Thoughts:
On 12/7/23, GSL announced that CEO, Ian Webber, would be retiring on March 31, 2024, and will be replaced by Chief Commercial Officer Thomas Lister. Mr. Webber will join GSL's Board of Directors. He held the CEO role since GSL's inception in 2007.
We rat GSL a Buy based upon its undervaluation, its attractive 7%-plus yield with very strong dividend coverage, and greatly improved debt leverage.
All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.
For further details see:
Global Ship Lease: Very Undervalued, 7% Yield, Low Leverage