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).
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.
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