Fleet Value Calculation For GSL

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About: Global Ship Lease, Inc. (GSL)
by: Johannes Moeller
Summary

Charter rates continue to be strong this week.

My estimate for fleet value at GSL is 8% below company disclosure at 1.23 bn USD.

EPS estimate of USD 0.23-0.52 for the coming 3 years.

Net Asset Value per share could increase to 4.20 in 3 years.

I wrote a comment on Global Ship Lease (GSL) last week, which resulted in a number of questions regarding the fleet value at the company. On top of this, GSL released its Q4 report early this week, where the company disclosed an updated charter-attached fleet value of USD 1.33bn.

But before diving into the boring numbers I just want to highlight, that we have just had another week of increasing charter rates, which is good for the entire sector. There is especially good momentum for the segments 6,500 TEU and 8,500 TEU, which is where GSL have the first 4 vessels open for new charters (Ian H, GSL Tianjin, OOCL Qingdao, Al Khor) – all being open in Q3 this year.

Harpex Source: Harper Petersen & Co.

So back to the numbers. Based on the questions last week, I decided to update my estimate of fleet value by using standard values from the large shipbrokers. The results in the table below show a charter-free value of the fleet of USD 0.79bn and a charter attached value of USD 1.22bn. The difference between the two numbers (USD 435m) is the value of the charter book at GSL. Most noticeable is the CMA CGM Thalassa, which still have 7 years left of its charter with CMA CGM at an amazing rate of 47,200 USD/day – more than double the current market rate.

Fleet Value Source: Created using author's own calculations

It should also be noted that my calculations result in a value being 8% lower than the value of USD 1.33bn disclosed by GSL in its recent Q4 announcement (The GSL number was equal to a Net-Asset-Value of USD 2.71 per share). What is then the explanation for this difference? The valuation disclosed by the company is based on vessel specific calculations done by a shipbroker with in-depth knowledge about the marked and all the vessel specifications. My calculation is based on standard vessels.

GSL claim they have vessels of high standard based on years of a high level of maintenance and built with high-specifications. My problem with this statement is, that I have never met the shipowner who says, his vessels are below average! So all shipowner, like all house-owners, claim their asset is better than average and therefore deserves a premium valuation.

On the other hand, a lot of containerships are currently in poor shape due to years of poor market conditions leaving little money in the pockets of shipowners to keep the vessels up to date. The German banks have for example taken over a lot of ships from KG constructions and there have been real horror stories about how little maintenance has been done on these vessels.

So I actually do buy the statement, that GSL has a more well-maintained fleet that the global average. Therefore the truth value of the GSL fleet is probably somewhere in between my estimate and the number disclosed by the company. Assuming a number in the middle would result in a Net Asset Value of 2.43 USD per share.

So what is the outlook for the company in the coming years? As I wrote in my comment last week (click here to read), I have a positive view on the container industry, where most market analysts expect demand will outstrip supply in the years to come.

My base case is, that the market will return to newbuilding parity. This means time-charter rates will return to the level required for a shipowner to earn a 10.5% IRR on a new vessel and second-hand vessel value to return to depreciated values between newbuilding price and scrap values after 25 years – as shown in the chart below for a 2,750 TEU feeder vessel.

New Building Parity Source: Created using author's own calculations

For a feeder vessel, this would mean time-charter rates of around 16,000 USD per day, which is by no means be excessive compared to historical levels.

TC rate Source: Created using author's own calculations

Also for ships values, these assumptions are by no means crazy compared to historical levels. A value of USD 29m for a 5-year-old feeder vessel is pretty close to the normal level before the financial crisis.

Asset Values Source: Created using author's own calculations

Plugging these assumptions into my model on GSL I end up with an estimated Net Asset Value of USD 4.20 per share at the end of 2021, which is my base case for investing in this company.

Net Asset Value Source: Created using author's own calculations

In the tables below are shown both my P&L estimates and my estimate for vessel values in 2021 in this scenario of values returning to newbuilding parity.

P&L Source: Created using author's own calculations

Fleet Values

Source: Created using author's own calculations

And here is the fully detailed model:

Full model Source: Created using author's own calculations

Disclosure: I am/we are long GSL. 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.

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