Costamare (CMRE) is preparing for their IPO on NYSE. I have obtained a copy of the prospectus and put the numbers into my discounted cash flow model.
I am using the usual input variables:
- Discount rate of 10%
- T/C rates from Contex for the T/C where no agreements currently exist
- Only 70% incremental T/C rates for ships larger than 4250 TEU which the largest ships in the Contex index
- 30 year economic life for the ships
- Market interest rates for the unhedged interest rate exposure
The result is a NPV per share of 19.00 USD. This is 18% above the IPO pricing midpoint of 16 and 13% above the top of the pricing range of 17.
This may seem attractive, and I suppose it is, but what is important to note is that there are opportunities in the market that are more attractive. Below I compare the CMRE with Global Ship Lease (GSL), Seaspan Corporation (SSW) and Rickmers Maritime (RCKMF.PK) listed in Singapore (symbol RM).
On a qualitative note, CMRE differs from the others by having older ships (on average 15 years on a non TEU weighted basis), shorter outstanding charter agreements, more capacity to acquire new ship as of now, shorter outstanding interest rate hedges, as good quality charter counter parties as SSW and no formal incentive structure for the management but they do own a large part of the company.
This in short means that CMRE is more exposed to shorter term developments in the chartering, new building and second hand market. We are relatively neutral on this.
On a comparative level when using the same input variables CMRE is however expensive:
- GSL: Current: 4.14 and fair value at 6.82 so 64% upside
- SSW: Current: 13.94 and fair value at 23.64 so 70% upside
- Rickmers Maritime: Current: 0.38 SGD and fair value at 0.77 SGD so 104% upside
Given SSW and Rickmers Maritime's more attractive valuations and the fact that they have less inherent risk than GSL with their heavy CMA CGM exposure and upcoming LTV calculation, we have a preference for SSW and Rickmers Maritime.
For those who like dividends Rickmers currently pays 8.12%.
On a side note, to force the valuations of SSW and CMRE to be equally attractive I have to adjust the discount rate for SSW to 12.75% and for CMRE to 4.5%. That is just too much to justify. I can't make them meet by changing the T/C rates alone.
Disclosure: Author long RM, GSL and SSW