Lloyd's List is part of Maritime Intelligence

This site is operated by a business or businesses owned by Maritime Insights & Intelligence Limited, registered in England and Wales with company number 13831625 and address c/o Hackwood Secretaries Limited, One Silk Street, London EC2Y 8HQ, United Kingdom. Lloyd’s List Intelligence is a trading name of Maritime Insights & Intelligence Limited. Lloyd’s is the registered trademark of the Society Incorporated by the Lloyd’s Act 1871 by the name of Lloyd’s.

This copy is for your personal, non-commercial use. For high-quality copies or electronic reprints for distribution to colleagues or customers, please call UK support at +44 (0)20 3377 3996 / APAC support at +65 6508 2430

Printed By

UsernamePublicRestriction

Red Sea disruptions boost Zim outlook

High freight rates mark a turnaround for loss-making line

Attacks on shipping in the Red Sea may be affecting supply chains, but carriers are doing well from the disruptions. Zim, the most directly affected line, is set to benefit after a rough 2023

THE Red Sea crisis has given a much-needed financial boost to container lines, with the impact on Israel-based Zim particularly notable.

Zim is yet to publish its full-year earnings for 2023, but in its third-quarter results recorded a $2.1bn non-cash impairment, was expecting an operating loss of $300m-$400m for the year.

Chief financial officer Xavier Destriau said at the time that the supply and demand imbalance would affect the market for the foreseeable future and into this year.

But a new research note from Jefferies suggests the narrative has changed for Zim as the hike in freight rates since December has sharply increased revenues.

“Zim’s high spot, high cost and high leverage platform was a major concern in a period of low freight rates, but it now provides substantial upside given the rise in spot rates,” said Jefferies analyst Omar Nokta.

“Red Sea diversions are likely to continue for an extended period, tightening capacity for longer, and Zim is set to capitalise.”

 

 

It said Zim’s strong cash position was positive, despite its high cash burn rate.

“We estimate Zim ended 2023 with $2.6bn of cash and, prior to the latest surge in freight rates, Zim’s quarterly cash burn was in the $300m range,” Nokta said.

“With operating costs, including leases, at close to $1,700 per teu and its realised freight rate falling to $1,200 per teu in 2023, the gap was significant. However, current freight rates point to Zim capturing an average of $2,100 per teu across its service lines.”

While it expects Zim’s fourth-quarter results to be weak, Jefferies said the first quarter of this year would see a bounce-back and would set the stage for a stronger second quarter.

“We believe [Red Sea disruption] will be stronger for longer as the geopolitical situation in the Red Sea has become more complex, prompting shipping companies to divert from the region in rising numbers,” Nokta said.

“We estimate containership capacity utilisation has jumped from 78% pre-diversions to 87% currently, taking liners from a market with limited pricing power to one with meaningful pricing power. Given Zim’s levered platform, we see the equity revaluing significantly in the coming months.”

Container fleet balance had tightened considerably due to ongoing re-routing of ships away from the Red Sea and freight rates were likely to be supported at far above break-even levels in the coming months, he added.

Investor confidence in Zim has see-sawed since its initial public offering in early 2021. After soaring to nearly $85 during the peak of the pandemic boom, its share price tanked to half its IPO pricing late last year.

Now, however, Jefferies is pitching the company as one to buy and has raised its target price to $20 from its $13.44 closing on Friday. 

 

Related Content

Topics

  • Related Companies
  • UsernamePublicRestriction

    Register

    LL1148083

    Ask The Analyst

    Please Note: You can also Click below Link for Ask the Analyst
    Ask The Analyst

    Your question has been successfully sent to the email address below and we will get back as soon as possible. my@email.address.

    All fields are required.

    Please make sure all fields are completed.

    Please make sure you have filled out all fields

    Please make sure you have filled out all fields

    Please enter a valid e-mail address

    Please enter a valid Phone Number

    Ask your question to our analysts

    Cancel