Results analysis: Taylor Maritime Investments

• Taylor Maritime Investments (TMI) has reported a strong first set of results since IPO on 27 May 2021, with NAV total returns of 81.3% and share price total returns of 45.5%.
• TMI declared dividends of 8.47 cents during the period, including three quarterly dividends of 1.75 cents and a special dividend of 3.22 cents. Annualised, this is equivalent to a c. 10% yield on the IPO price.
• TMI raised $254m at IPO on 27 May 2021 (160m cash and $94m in consideration shares), which was followed by a subsequent capital raise of $75m on 28 July 2021.
• As of 31/03/2022, its portfolio consisted of 31 vessels (including vessels contracted to sell) with a total market value of $546m. Of the 31 vessels, 29 were Handysize and 2 were Supramax. The average age of the fleet was 11.4 years.
• The fleet's average net time charter rate at 31 March 2022 was approximately US$18,600 per day, with an average duration of six months and an average annualised unlevered return in excess of 24%. This compares to $15,600 per day, with an average duration of ten months and an average annualised unlevered gross yield of 20%, as of 30/06/2021.
• During the period, TMI bought a 26.6% stake in Grindrod Shipping Holdings Ltd., a dual NASDAQ and Johannesburg Stock Exchange listed shipping business for $17.64 per share. At 31 March 2022, Grindrod Shipping's share price was $25.44 per share, 44.2% higher than the purchase price. TMI also received dividends of $1.44 per share, representing an annualised yield of c. 16% on the investment.
• Since the year end markets have sold off, and TMI’s shares are down 3.3% on a total return basis (to 18/07/2022). The discount to NAV has widened to 22.12%.
• TMI’s Independent Chair Nicholas Lykiardopulo said: “We remain confident that market fundamentals will lead well into 2024 and we will continue to monitor the orderbook for indicators on market direction beyond that period.”

Kepler View

Taylor Maritime Investments (TMI) is designed to offer investors exposure to the shipping 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. The first set of results are outstanding, and reflect a bounce back in global trade after economic shutdowns due to the pandemic. TMI has already been able to sell some of the seed assets for excellent gains, and recycle the cash into younger and more efficient ships.

Shipping can be a highly cyclical business, but manager Ed Buttery believes the Handysize segment is suffering a medium-term shortfall in supply which should create strong pricing pressure on ships and charters until at least 2024 subject to new supply coming onstream. In the longer run, ESG requirements are creating demand for more fuel efficient and environmentally-friendly ships which should also provide support to the price of younger and more modern ships, such as those owned by TMI.

TMI’s shares have sold off since their peak in May. In general, markets have indiscriminately sold off during this period as fears of recession grew. It is possible in TMI’s case that some investors decided to take profits after such an exceptional period of returns. With the current discount at 22.4%, we believe the shares are now offering some considerable buffer against the impact of any recession. It is true that charter rates have been short term (generally less than one year) but this enabled TMI to chase higher yields once markets improved after the typical seasonal weakness of the Chinese New Year period. The company has since embarked on a programme of fixing a greater portion of their fleet on longer term charters as they anticipated a strengthening market in the lead up to summer and recently announced five vessels in its fleet have been fixed on time charters for an average of 11 - 13 months, with an average annualized unlevered gross cash yield in excess of 30%. This should help maintain consistent portfolio income in the event charter rates soften. As such, we think there is no realistic risk to the 7 cents per share dividend given the extremely high levels of cash being generated (as we discuss in our recent research note)– although the manager intends to pay down a revolving credit facility over time.

In the short term we acknowledge the risks, although believe the discount is already offering interest. 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. In the long term we believe Ed and the team’s experience and contacts in the industry make them well-placed to profit from trading and chartering ships. This is a young asset class in the investment trust space, and as the market becomes more familiar with it, we think there is scope for the discount to narrow, which would add to shareholder returns.

Login to read the full article...