Fund Profile

Disclaimer

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.

Overview
TMI is trading on a wide discount despite outstanding early results and a high special dividend…
Overview

Taylor Maritime Investments (TMI) offers a high and growing dividend from the shipping industry through the active management of a high-quality fleet by a team of industry specialists. The trust was launched in May 2021 under the management of CEO Edward Buttery. Edward has extensive experience in senior positions in the shipping industry, and his father Christopher, who sits on the board and is a significant shareholder, founded Pacific Basin, one of the world’s leading owners and operators of Handysize dry bulk ships, in 1987. TMI is designed to offer investors exposure to this industry with a low-leverage strategy focused on high-quality ships that transport food and other necessity goods, which have historically proven to be resilient to the broader industry’s cyclicality.

Edward and his dedicated team have identified a shortfall of supply in the Handysize segment of the market. These smaller, versatile dry bulk carriers are essential to global trade, delivering necessity goods. A slowdown in their manufacture has led to a shortfall in supply which Edward believes can’t be made up in the next two to three years, in his view keeping prices and charter rates high. TMI owns a fleet of high-quality ships, which Edward believes will prove more resilient in any downturn and support the target yield of 7% on the issue price without the contribution of any long-term Gearing. Since launch, income generation has been so strong the trust has announced a special dividend for 2022 of 3.22 cents a share, or 54% of the target annual payout (see Dividend).

Unlike some other real assets trusts, TMI will sell assets where returns have been exceptional and recycle the capital into better-priced or positioned assets. Ed, the management team and the board’s contacts in the industry should facilitate this. Returns so far have been exceptional, well ahead of the 12% p.a. return target (see Performance). The trust trades on a substantial Discount to the most recently published NAV.

Analyst's View

TMI offers exciting total return potential. The high cash generation achieved so far suggests there may be scope to grow the dividend and build a cash reserve for tougher times too, although, in the short term, the trust will be paying down a revolving credit facility. We believe the opportunity to invest alongside shipping specialists and benefit from their expertise and connections is attractive. The investment strategy of focusing on high-quality ships - in the first instance in the Handysize segment – avoiding gearing and aiming for resilience seems an attractive way to play what can be an economically-sensitive industry. In the current environment, the natural inflation hedge element is another plus. The cost of building new ships rises as raw material prices do, which is linked to the value of existing ships. While charter rates are not linked to inflation, limited supply means operators currently have strong pricing power.

Notwithstanding the strategy of focusing on quality vessels within the resilient Handysize segment, shipping, broadly speaking, remains a cyclical industry, and fortunes are likely to fluctuate more than with other real assets sectors such as property or infrastructure. However, the fundamentals look supportive through to 2025 (see Portfolio), and in the current inflationary environment, both the capital and income growth potential look attractive. This is a young asset class in the investment trust space, and as the market becomes more familiar with it, there is clearly scope for the discount to narrow, which would add to shareholder returns.

Bull

  • Highly experienced and specialised management team and board with excellent contacts in the industry
  • Differentiated and defensive Handysize niche positioning and scope for shipping to provide an inflation hedge
  • Portfolio generating high levels of income, allowing payment of a substantial special dividend

Bear

  • The broader industry is cyclical and economically sensitive and dependent on global trade
  • The industry can be opaque to outsiders, as is a trust’s SPV structure
  • Look-through costs are high once one considers asset management charges
Continue to Portfolio

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