The ongoing rally in the broader S&P is fuelled by the bullish bets placed on the technology stocks, while high inflation and elevated interest rates continue to put pressure on the stock prices of ports and terminals companies. On a YTD basis (ending 27 July 2023), Drewry Port Equity Index declined 0.9% vis-à-vis a valuation gain of 18.2% for the S&P index. Also, the variance between the two has increased to 19.1% on YTD (vs 5.6% in 1Q23).
Supply chain congestion has normalised, bringing the container dwell times down to prepandemic levels, lowering the storage led income and thus contracting overall revenue. APMT and Westports reported a double-digit decline in the 1Q23 revenue per teu, mainly led by improvement in the supply chain.
The recent operating data of a few industry participants highlight the mixed performance among the different port operators. Santos Brasil, which is a Regional Terminal Operator (RTO), reported a dip of 11.8% in container volumes in 2Q23 (vs -14.3% in 1Q23), whereas CMPorts and COSCO SHIPPING, classified as Global Terminal Operators (GTO), reported improvement in their container throughput in 2Q23 to 5.3% (vs 1Q23: -4.6%) and +3.2% (vs 1Q23: -4.0%), respectively.
For the companies under our coverage, 1Q23 data reported an average margin compression of 1.7 percentage points. Margin contracted due to lower revenues and higher costs (mainly personnel costs). As the decline in the storage income normalizes, EBITDA margins should start to stabilise.
Ports and terminals operators opted out of debt markets in 2023 amid significantly higher interest rates. Most operators are dwelling on their cash balances to meet their capex needs. The companies raised higher debt in 2020 to lock in the lower interest rates for short-to-mid-term. None of the companies under our coverage has approached the debt market to raise additional debt.
Port and terminal sector’s EV/EBITDA spiked in 2023, mainly led by a higher fall in the EBITDA vis-à-vis decline in equity prices. At the current level, the industry trades in the undervalued zone with a discount of 7.8% to its 10-year average, highlighting an opportunity for investors with long term horizon to invest in the sector.
Source: Hellenic Shipping News
