Shipping orderbook very low -
Shipping set for boom decade due to under investment in new ships, says Cleaves
Norwegian investment bank says orders this year set to be fourth-lowest on record
Shipowners could be in for one of the best decades in some time due to a lack of spending on new vessels, according to Cleaves Securities.
The Norwegian investment bank calculates that 2020 is on course to have the fourth-lowest level of newbuilding orders on record.
Cleaves said 23.7m dwt of vessels have been contracted so far this year.
At that rate, this would mean a year-end figure of 31.6m dwt.
The worst year for shipyards was 2016, when 24m dwt of ships were ordered. Next come 1996 (26.1m dwt) and 1998 (27.1m dwt).
Tankers more popular
"The main driver this year is the dry bulk orderbook, with orders year to date at 8.1m dwt," Cleaves head of research Joakim Hannisdahl said.
The only lower figures over the first three quarters of a year were in 1998 (7.9m dwt) and 2001 (7.5m dwt).
"The ordering for tankers is slightly higher," he added.
"Counting the first three quarters, it ranks as the eighth-lowest year with 12.7m dwt on order year-to-date, with the three first quarters of 1996 at the bottom with 7.3m dwt."
With vessel supply set to tighten, Hannisdahl added: "The continued underinvestment in most shipping segments leads us to believe that the 2020s could be one of the best decades for shipping in a long time."
Clarksons Research data shows 512 new vessels contracted so far this year, against 1,491 in the whole of 2019 and 405 in 2017.
The UK company has said shipping's supply side remains "manageable", with the orderbook continuing to shorten to a 31-year low at 7% of capacity.
Clarksons Research says orderbook now at lowest point since 1989
With limited new orders, Clarksons Research is projecting fleet growth of 2.6% this year and 1.7% for 2021.
Since the orderbook was last equal to less than 10% of the fleet in 1993, the great shipbuilding boom of the 2000s saw vessel ordering average 164m dwt per year between 2003 and 2008, according to Clarksons.
This took the orderbook as a percentage of the fleet to a peak of 52% at the end of 2008, with record ordering ending with the onset of the global financial crisis.
And the figure has dropped steeply since.
Last month, Oslo-listed owner Okeanis Eco Tankers said the tanker supply situation may be the "most bullish" in history.
But VesselsValue and Norwegian research house ViaMar have expressed doubts as to whether recent rises in VLGC rates can be maintained due to the relatively "firm" orderbook for these gas carriers.
DGAZ - DGAZF news on early redemption -
DGAZ - DGAZF manipulation
SPCE +1.25 to 8.51
Shares of Virgin Galactic (SPCE) surged on Monday after a Morgan Stanley analyst recommended investors buy share, as the firm sees the greatest value potentially coming from hypersonic travel more than leisure space travel.
BUY FOR THE HYPERSONIC OPPORTUNITY: Morgan Stanley analyst Adam Jonas initiated coverage of Virgin Galactic with an Overweight rating and $22 price target, telling investors in a research note that he sees a "biotech-type risk/reward" for the shares. He believes the addressable market for space tourism is niche, but supported by a range of industries.
However, Jonas believes what is really likely to drive upside for the stock is what he calls "the third phase of the VG business model," namely hypersonic point-to-point, or P2P, air travel. "A viable space tourism business is what you pay for today... but a chance to disrupt the multi-trillion-dollar airline [total addressable market] is what is really likely to drive the upside," Jonas wrote. He added that “the shares feature biotech-type risk/reward where today’s space tourism business serves as a funding strategy and innovation catalyst to incubate enabling tech for the hypersonic P2P air travel opportunity."
WHAT'S NOTABLE: The analyst's $22 price target factors in $10 per share in value for space tourism and $12 per share for the hypersonic opportunity that are part of the company's three-phase plan outlined during its roadshow earlier this year, he said. He forecast $800B in annual sales for hypersonic travel by 2040.
"While some investors have described high-speed hypersonic P2P air travel opportunity as ‘the icing on the cake’, we see Hypersonic as both the cake and the icing, with Space Tourism as the oven," Jonas said.
FIRST SPACE TOURIST FLIGHT NEXT YEAR: Virgin Galactic expects to begin flying its first space tourism customers in the next six to nine months. Morgan Stanley estimates Virgin Galactic can ramp its flight offerings to serve more than 3,000 passengers by 2030, as Jonas says “the addressable market for space tourism, while niche, is supported by a range of industries, including yacht charters and luxury cars." “Space Tourism’s goal over the next year: be safe, stay funded,” he wrote. “We believe the key catalyst over the next 12 months will be sending even one customer to space and returning safely.”
While Jonas acknowledged that there are many risks and unknowns to the story, including the possibility of fatal accidents, regulatory obstacles, limited market acceptance, competition, insufficient economics, and liquidity constraints, "taken together, we think the risks are offset by the potential scale of the reward," he wrote in his note to investors beginning coverage of the stock.
PRICE ACTION: In afternoon trading, shares of Virgin Galactic are up over 15% to $8.38.
M (15.15) - Barron's article
Outside the massive Macy’s flagship store at Manhattan’s Herald Square, a Christmastime sign reads “Believe in the Wonder.” But with the retailer’s shares down by nearly half this year, investors might be wondering what to believe.
Profits are tumbling. This fiscal year through January, operating income is expected to fall by a third, to $1.25 billion. That’s less than Federated Department Stores earned on its own before 2005, when it paid $11 billion for May Department Stores to create today’s Macy’s. At this point, the company’s credit-card business earns more than its stores. Further operating-income declines are expected next year, and the year after.
The shares (ticker: M) recently fetched $15, after topping $70 less than five years ago. Who would want to own them? Perhaps an investor eyeing that Herald Square real estate, which Macy’s owns, and which could be worth $3 billion to $4 billion, versus a stock market value for the company of $4.6 billion. Or an income seeker enticed by the 10% dividend. Or a bargain hunter following the turnaround efforts of another department store, Nordstrom (JWM), whose shares have slumped for years, but jumped 10% after the company’s latest quarterly financial report, and 16% the report before.
Count us among the Macy’s skeptics, as bustling as we found the flagship store during a midday visit this past week.
Outside the main entrance, a crowd gathered as a Salvation Army collector danced to Michael Jackson’s “Billie Jean.” Inside, tourists wielded selfie sticks. Many carried bags with purchases. One local, Shawn Kennedy, 50, from the Bronx, called the clothing prices he found “all right—they could have been better.” He has been coming to this store since his mother took him there to see Santa Claus as a boy, and doesn’t like shopping online. “I’m kind of old school,” he says. Next to his Macy’s bag was one from Old Navy.
Here are three things investors should know about the Herald Square store:
First, those who visit should skip the elevators and instead ride the remarkable wooden escalators found between higher floors. Some have treads made from solid ash, a hardwood, and are approaching 100 years old.
Second, this particular store, with vast spaces devoted to thriving luxury brands such as Louis Vuitton and Gucci, gives a false sense of the challenges facing the broader company. Macy’s operates more than 600 of its namesake stores, and an analysis by UBS last year of per capita incomes near these stores found that Macy’s customers more closely resemble those of TJX’s (TJX) T.J. Maxx and Marshalls chains than those of Nordstrom. TJX specializes in so-called off-price goods—including those bought opportunistically from overstocked department stores and sold at deep discounts. An analysis of off-price store openings, including for Ross Stores (ROST) and Burlington Stores (BURL), suggests that these merchants view Macy’s neighborhoods as plum targets.
Macy’s takes its own high-low approach to retailing, with its upscale Bloomingdale’s chain and its off-price Backstage stores. But Bloomingdale’s has only several dozen stores, and sells many of the same brands found at Macy’s. And Backstage largely operates within Macy’s stores, where it can’t avoid competing with them.
The third thing to know about the Herald Square flagship is that Macy’s says it’s exploring its real estate options, but is committed to the store there. According to Morgan Stanley, a sale and leaseback of the property would result in long-term lease payments with a present value of perhaps $4 billion—a near-term cash freer-upper, but hardly a big moneymaker over time.
There are reports that Macy’s plans to build up from its store, perhaps adding residential or office space. The company says that it will give more details on its real estate strategy in a Feb. 5 investor presentation. According to Morgan Stanley, after years of Macy’s cashing in on its real estate, the Herald Square location is the last flagship of significant value. Macy’s declined a request to speak with its CEO of two years, Jeffrey Gennette.
Credit-card revenue, which comes from a venture with Citigroup (C), declined 1%, year over year, last quarter. But Morgan Stanley, extrapolating from management guidance, reckons that it could fall 9% during the fourth quarter. Such financing operations can be a boon when consumers are feeling flush, but a burden if conditions worsen.
The dividend will cost about $465 million this year, and Macy’s generates enough cash to cover it, but if cash flow continues shrinking at its present pace, management could come under pressure to cut payouts within two years.
Long-term debt is $4.7 billion, and long-term lease liabilities are $2.8 billion.
Every stock has a bull case. The one for Macy’s probably involves a smaller store base and a clever real estate plan. A price of under six times this year’s projected earnings covers a lot of flaws. The stock could gain quickly on good news. J.C. Penney (JCP), a much weaker operator, has seen brief windows in which its shares jumped 50% or even doubled in value over the past five years. But those stretches of strength have come amid a long slide to just over $1 a share recently.
Macy’s has time to avoid that fate. But with consumer spending strong now, this is a moment of no excuses for retailers. Believe in the wonder at Macy’s, sure, but doubt the turnaround until management offers much more evidence.
Write to Jack Hough at firstname.lastname@example.org