Taylor Maritime Investments 16 January 2024
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Taylor Maritime Investments . The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Taylor Maritime Investments (TMI) has made good progress on its strategic objectives in recent months. Since the acquisition of Grindrod in December 2022, vessel sales have led to an overall improvement of the fleet in terms of quality and age, and contributed to strong progress towards deleveraging after the partially debt-funded acquisition.
As we discuss under Gearing, c. $91m of debt had been paid back through to the end of September at the fund level, saving $7.7m in interest costs per year, with ‘look-through’ debt reduced by c. $147m1. Gearing, reported as a percentage of debt to gross assets, was 26.9% at the end of September or 38.5% on a look-through basis after seven vessel sales from both the TMI and Grindrod fleets during the quarter. The subsequent sale of TMI’s two oldest vessels, which completed last quarter, will see another c. $11m of debt repaid, taking gearing to 26.1%, close to the company’s 25% target. The fleet is now entirely made up of Japanese ships with a low average age, which should help preserve values over the long run (see Portfolio).
The acquisition of Grindrod is intended to deliver cost savings and efficiencies over time, and one significant recent step was the acquisition by Grindrod of the commercial and technical managers of TMI’s fleet. These previously external, operational management companies are coming in-house at the group, in a cash-plus-shares deal that is designed to generate cost savings.
Charter rates had been weaker than expected in spring and early summer but recovered sharply from early August when strong seasonal grain demand coincided with congestion in the Panama Canal that tied up tonnage. Rates surged further again in late November, hitting 13-month highs in December, with further delays and congestion in the Atlantic soaking up tonnage and driving up rates, showing just how finely balanced demand and supply are for this segment. Vessel prices also recovered in turn. TMI continues to pay a dividend at 2 cents per share, equivalent to an annualised yield of 9%. The shares trade on a wide discount to NAV of 32% at the time of writing.
1 Including lease liabilities
The shipping industry has passed through a rough patch over the summer, but TMI continues to support an attractive dividend while Ed Buttery, CEO of TMI, has fashioned a fleet that looks to be in a strong position to deliver value over the long run. The deleveraging process has proceeded at great pace, and it is encouraging to see the market provide liquidity close to carrying value, even in a falling market. We also think it is promising to see dividends continuing to be paid at the current level despite a fall in cash generation over the summer due to weak charter rates. We understand that at the time of writing cash generated by the combined fleet on an ongoing basis has returned to almost the level at which it covers interest costs and dividends (see Dividend).
Share prices in the investment company space were under pressure in 2023, and TMI did not escape. Factors we think are likely to be playing a role in TMI’s case include the gearing, the cyclical nature of the industry (given fears of global recession) and the slowdown in China. On top of this, high cash rates are luring many investors away from risky investments. The factors that are in the manager’s control – gearing, costs and portfolio renewal – are all seeing good progress in our view. As for the macro-factors, they are unpredictable, but a 35% discount could be an attractive entry point, given asset disposals have proven the NAV to be relatively robust.
- Highly experienced and specialised management team and board with excellent contacts in the industry
- Young and modern fleet in strategically flexible sectors
- Highly cash generative when market is strong
- Shipping is cyclical, economically sensitive and dependent on global trade
- Gearing remains above target on a look-through basis
- Look-through costs are high and management arrangements complicated