Improved Analytics And Better Results For Shipping Investors

Summary

• The shipping sector can often be a confusing arena, accelerated by the lack of good data and analysis available to retail investors.
• Earnings ratios, book values, and many other 'traditional' financial metrics are often very misleading and sometimes downright incorrect.
• We have partnered with VesselsValue over the past few years to bring accurate live ship valuations to investors on Seeking Alpha and at Value Investor's Edge.
• VesselsValue has continued to improve its platform and is now offering unique trade data insights and fleet information.
• We're expanding our partnership to cover these new features and will be bringing some of this analytics to our future research. I encourage all interested investors to check out these latest improvements.

Note: We covered why current ship valuation data is important for investors in a public report from early-2017. This is highly recommended reading for anyone with investments in this sector. The most relevant related fund is Guggenheim Shipping ETF (NYSEARCA:SEA-OLD), but there are over 60 publicly-listed companies, some of which are discussed below.

Benefits of Good Data

Successful investment in the shipping sector requires rigorous analysis, good understanding of macro trade flows, and quite honestly a fair degree of luck. We've been working in the sector for nearly a decade and have experienced significant ups and downs across a variety of areas including dry bulk, containerships, crude tankers, product tankers, and gas vessels.

Since mid-2013, we have partnered with VesselsValue "VV" to be our primary data provider, and we have continued and improved our collaborations as we move forward. VV is a very important service for anyone with significant capital invested in the shipping sector because it provides current valuations of assets and real-time data analytics to help improve awareness and confidence with investment allocations.

Bullish Example - Find Gems

When we're working on our industry overviews, we often use VV data to study upcoming vessel supply trends and to cross-check current valuation data with share prices. Last December, International Seaways (INSW) came public as a spin-off and immediately began trading into the ground. We used VV data to help determine a NAV valuation in the mid-$20s, and at Value Investor's Edge, we piled into the stock between $11 and $14. We brought our idea public a bit later and eventually sold at $22.50, for a gain of 67% in 6-7 months.

We've recently re-opened our bullish position in these difficult markets, picking up shares in the high-$15s. Our current NAV analysis points to a valuation around $26/sh, although we've set our price target slightly lower.

Bearish Example - Avoid Traps

Access to real-time valuation data can lead to more accurate balance sheet and performance reviews. Balance sheet numbers are based on historical purchase prices as opposed to current market values. This means that when firms historically overpaid for vessels, their assets can be wildly overstated, and in the most extreme cases, unsuspecting investors can be looking at insolvent balance sheets while thinking they are buying a solid firm.

For the most recent example of these balance sheet mismatches, Diana Shipping (DSX) just announced a $423M impairment loss (approx. 30% write-down) during its Q4-17 results. Someone with access to VesselsValue would have already seen this coming and perhaps could argue that the write-down (to $1.05B) didn't go quite far enough! Its latest report is shown below:

Access to this data has enabled us to make smarter decisions as investors. Anyone investing in this sector without similar analytics is heavily disadvantaged or even flying totally blind. We have more specific examples of why valuation data is significant in a detailed overview shared in early-2017.

New Initiative: Live Trade Flows

VesselsValue has long provided excellent real-time valuation data, but in the past few years, it has further expanded its platform to include unique insights on global ship balances and even global trade flows. We've been discussing these developments extensively in the past, but last week, I discussed some of the latest developments with William Bennett, Lead Trade Analyst at VV. I believe these new features have significant predictive potential and are worth a public review.

I will be utilizing some of these metrics in our future reports and James Catlin will also be providing relevant updates in his macro coverage of the primary sectors. These will lead to better public reports for members of Seeking Alpha along with enhanced research capabilities at Value Investor's Edge. Investors can access this data to make their own analytic decisions as well.

In the following section, William and I discuss the updates to the platform:

J Mintzmyer, Value Investor's Edge: I understand you've been committing extensive resources to enhancing your VV Trade Platform for the benefit of your members. Can you explain this platform briefly?

William Bennett, VesselsValue: VV Trade is a tool that takes raw AIS location data for ships and packages it in a data-friendly, "easy-to-mold" manner. This data in its simplest forms is the stops and journeys of a vessel. We market this data primarily on our online platform. By utilizing our proprietary platform, the user can quickly investigate where these Tanker or Bulkers have been, what it was doing there, how long the activity took, how many times has it stopped in this port, where it is bunkering most, etc. It goes on… So far, we have provided this service to the Tanker and Bulker fleet. We are now providing the service for gas carriers. This includes the LNG fleet and the LPG fleet.

Mintzmyer: This is clearly significant data. What are some of the benefits to such a platform?

Bennett: The simple format of the VV Trade interface allows fast and easy aggregation of the millions of rows of raw data into useful, actionable insights. For a single vessel, we could look at the historic speed, the percentage of time it has spent laden, or the historic ton miles (demand) undertaken. For an entire fleet, we can see this and can take it a step further with trade route analysis. Investors can quickly analyze current shipping flows and quickly compare to historical levels of activity.

Mintzmyer: I've previously used these tools to evaluate tanker routes for firms including Scorpio Tankers (STNG), Frontline (FRO), Euronav (EURN), and others. I understand you are expanding this capability to now include LNG and LPG. Have you discovered any interesting insights in this development?

Bennett: I am very excited about this new development. Both gas markets are going through change. Particularly in LNG, trade routes are proliferating with more liquefaction coming online and demand for the product expanding globally. Similarly, for LPG, fleet supply is growing faster than normal. The order book today represents 13.2% of the live fleet. In comparison, the order book live fleet ratio is 10.5% for Bulkers and 12.1% for Tankers. Factors not limited to but including shale gas paint a bright near-term future for LPG with subsequent growth in LPG shipping demand mounting significantly. We believe our platform will give investors the edge in determining real-time trade flows and potential for forward shipping demand. We've included some snapshots of our platform below.

Top export routes from Qatar over the past 6 months using trade flow analytics

The following snapshot illustrates how investors can search from country specific export points to see where cargoes are trending. Investors can look at the total distance traveled and relative cargo tons to determine how shifting trade patterns could impact their investments. For example, growth to the "Far East" is far more beneficial than the same increase in trade to "India West Coast."

Load activity heatmap of VLGCs over the last 12 months

The following heatmap (which can be customized to illustrate virtually any trade flow imaginable) illustrates where most of the current very-large gas carrier ("VLGC") vessels are being loaded. As illustrated, most of the activity is coming from the Qatar-area and the US Gulf. Major plays in this sector include Dorian LPG (LPG), Navigator Holdings (NVGS), Avance Gas (OTCPK:AVACF), and BW LPG (OTCPK:BWLLF).

Discharge activity heatmap of VLGCs over the last 12 months

The following chart illustrates where the majority of discharges are taking place, primarily in eastern Asia. If one expects the US Gulf to Asia trade to continue to expand rapidly, then ton milage will explode as this is one of the world's longest routes. Investors with this thesis could continue to monitor market performance in real time with the use of this analytics.

Fleet ton miles for Dorian LPG

These metrics can also be tied directly to publicly-traded shipping company fleets, so investors can see their activity and trade routes in real time. The below example shows the shifting ton mileage utilization for Dorian LPG. (Note: J Mintzmyer is long LPG in personal accounts). The first part of the growth is simply due to Dorian's fleet expansion, but one can see the peaks in 2016, followed by lower numbers over the past 18 months.

This data isn't perfect yet, primarily since this is just a one company snapshot, but once the fleet is normalized for full-capacity in 2016, we can see where the dips below 4B ton miles, suggesting lower fleet utilization tend to predicate weak results and subsequent stock pricing. I personally find the data more useful for broad sectors, but these sorts of breakdowns do help determine which firms are finding employment and which firms are forced to lay-up tonnage. Proprietary data from VesselsValue, such as this trade information above, has often kept us months ahead of public filings and broad news cycles.

Expanding to LNG

The VesselsValue platform also provides similar data for the LNG sector and it has been producing very effective data for the tanker (crude and product) and dry bulk sectors, which we have been able to utilize to help support our investment allocations. The LNG trade data is especially relevant as one can track increasing exports from the US Gulf to Asia in real time. This is relevant both for export and producing companies like Cheniere (LNG), but especially for transport players like Golar LNG (GLNG), Teekay LNG Partners (TGP), GasLog (GLOG), GasLog Partners (GLOP), and Dynagas LNG Partners (DLNG).

Conclusion

Navigating through the shipping sectors can be very difficult for investors, especially without access to the best data. These sources have improved our research efficiency and they have been invaluable to our performance. This platform is easily worth the cost for any serious investors, especially those who are running a fund or looking to diversify a major portfolio. Stated book values and claimed industry metrics from company filings should always be treated with skepticism, accessing VV's platform allows for direct access to the raw data and for real-time fact checking of investment thesis.

Analyst’s Disclosure: I am/we are long LPG, INSW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[cross]

I've been swinging in and out of DSX. It is looking attractive @ 4 bucks a share.

[C.Phillips]

The shipping industry’s profits will see a large decline when IMO is enacted. Just look at all the refinery’s profit predictions. This industry will see a slight bump when trade is settled but don’t think it will return to last years levels within the next 2-3 years if at all.

[J Mintzmyer]

Depends what happens with supply of older vessels. New regulations often lead to an increase in profits for newer vessels.

[jr.raww]

J, great job partnering with VV. For my shipping investments I rely heavily on your research and over the past year and a half have found your research to be the best on SA (shipping and otherwise). Always look forward to reading your articles.

[J Mintzmyer]

Thanks jr. It has definitely been a great data source for us, and I'm continually impressed by their data developments. Been working with VV since mid-2013.

[brightonchou]

STNG from 5 to 2. scam

[brightonchou]

SHORT all the way down. SHORT is guaranteed to win.

[VaslavN]

MATX is one of the best in the biz. Full disclosure: this ke'iki o' ka a'ina is a proud and faithful stakeholder. A hui hou. ;-)

[Plimsoll]

I think MATX will have a good quarter. Pasha is down one ship due to shipyard time and one ship helping out with Puerto Rico rebuilding, so their Hawaii overflow has to go on Matson ships.

[Dgaines80]

Do you think SEA is a good long term investment at the current price?

[J Mintzmyer]

I’m not really a fan of the way SEA is structured, they are very heavily weighted into containers and there isn’t any sort of fundamental weighting that I can tell. Their performance has been abysmal over the past few years while we have easily exceeded those levels by utilizing fundamentals.

[Dgaines80]

Thanks

[doonich]

Powerful source, thx for education.

[rusty13]

Thanks for the article..

[cross]

i guess this very novice dfybulk shipping investor doesn't really see the great significance to the DSX write down of ship values. Doesn't this write down enable DSX to lower or eliminate write downs for the next several quarters at the very least? It is what it is. Looking at DSX specifically, they have 15 ships stacked up for re-charter over the next six weeks at very favorable rates. They are looking at being slightly profitable this year instead of a projected slight gain for next year.
Does this huge write down make DSX a 'no go' stock for the better informed?

[J Mintzmyer]

The write-down is non-cash. It doesn't change DSX's value at all, not one iota.

My point was to simply mention how a lot of investors will find these stocks and think leverage is low/stable or there is "Huge value" because they see a very low P/B. In reality, a lot of times, the leverage can actually be quite terrifying.

There have been firms with P/B ratios and D/A of like 0.2x and 40% who have went bankrupt.

That's why utilizing real-time valuations, like the ones provided from VesselsValue, can help folks make much more informed decisions.

DSX's latest action was simply them doing the right thing, bringing their balance sheet in-line with reality.

[J Mintzmyer]

The "Avoid Traps" wasn't speaking to DSX today, but rather saying how these values could be used going forward (or historically with DSX for example) to avoid falling into traps based on misleading asset statements on the balance sheet.

[Blue Ridge Equity Research]

nice advertisement.

[J Mintzmyer]

You could take that cynical viewpoint, or you could also see an overview of groundbreaking new analytics tools. Tools which they’ve agreed to share for use in some of our reports here on Seeking Alpha.

Furthermore, lots of investors don’t understand the difference between NAV and book value. This is a major issue for shipping investors.

[Blue Ridge Equity Research]

ive got no issue with native advertising, just say thats what it is....

[James Catlin]

Hello J.

Excellent point and examples about the need for accurate information. Real time data is the only reliable way to make real time decisions.

As you, and many of my readers know, I also utilize VesselsValue for a great deal of my research. It is an absolutely amazing service that goes well beyond what you were able to show in this article. I have been thoroughly impressed by the amount of information available as well as intuitive nature of the site. Well worth the money for any serious investor or researcher. Very happy to hear about these upcoming enhancements.

[billgatesisevilus]

Unfortunately, for those of us with a more limited research budged, VV is way too expensive to use. Having folks like yourself and J.Mintz use it and say what the found is very valuable to us.