ZIM Integrated: Get Ready for Big Losses (NYSE: ZIM)

like ZIM Integrated Freight Services (New York Stock Exchange: ZIM) to report first-quarter 2013 earnings on the Monday before the market opens, the market still looks bullish on container shipping stocks. The company is set to report a significant loss to quarter, but some investors are still expecting a dividend surprise, which may require a profit for the quarter. for me investment thesis It’s still bearish as the stock heads into a lackluster year ahead.

Lots of red ahead

Analysts expect ZIM to report the following numbers for the first quarter as follows:

• Consensus EPS estimate – $0.22 vs. $14.19 a year ago
• Consensus revenue estimate is $1.59 billion (-57.3% YoY)

ZIM is facing a tough market with the Drewry Index trading mostly along the bottom for the past month or so. Shipping price on May 18 for a 40-foot container was $1,720, up slightly from Low rate of $1,709 on April 13th.

The negative part for the bulls is that the Freight Index rate continues to fall again from the high of $1,774 on April 20th. The Global Container Index is down $54 in the last month alone and looks poised to set new lows.

The index is actually 21% higher than the average 2019 (pre-pandemic) rates of $1,420 in a positive sign, but also an indication of how low rates have fallen. Investors should assume that this is the low rate of the cycle.

The problem with ZIM is that the lows weren’t reached until the beginning of the second quarter. Whatever the container shipping company reports in the first quarter, the numbers are only going to get worse in the second quarter and possibly in the third quarter.

Apparently, not many analysts are forecasting the quarterly numbers on ZIM, but the consensus from 2 analysts is a much bigger loss in the second quarter. In total, those quarterly losses are just $1.60 for 2023 while the average of 6 analysts have annual forecasts predicting a much larger loss of $2.54 per share.

The implication is that the quarterly numbers above are likely to be much worse. The average analyst actually expects an additional loss of approximately $0.25 per quarter through 2023.

Remember, ZIM still plans to acquire new premises over the next two years up to 41 ships with 58 renewal charters over 2023 and 2024. It will hit the market whether ZIM markets it or anyone else.

On our Q4 ’22 earnings call, CEO Eli Glickman was clear that vessels chartered from tonnage providers were at rates that would only be held with renewals at lower rates:

Now, when we look at the ships that will be refurbished, in ’23 and ’24, that’s obviously 50 ships, most of which is very likely, depending on what the market does, but if market conditions remain difficult, most of those ships will be delivered. We do not intend to break any of our obligations, to any of the payload providers, we will make a decision to redeliver the payload when we have the capacity to do so, or engage early on with some payload providers to discuss a possible extension. , if we think and at a lower rateobviously, if we think this indicates overuse for us any longer.

Just last month, ZIM announced the commissioning of two new LNG-powered vessels in a market where demand is low. The container shipping company has commissioned these vessels under a long-term charter agreement with Seaspan at prices that are unlikely to be favorable to ZIM at this point given that deals were signed back in February 2021.

Lots of bulls

The amazing part of ZIM’s story is how optimistic shareholders are in search of Alpha. Since Stone Fox Capital wrote the bearish article in early April, the last 6 articles from 5 different contributors have been optimistic.

As noted above, ZIM is set to report the Q1 loss the start of a long streak of big losses in the coming years. Most investors buy this stock for the dividend and it seems unlikely that the company will pay a dividend with an operating loss.

ZIM was guided by 2023 adjusted EBIT between the $100 and $500 million range, giving investors hope. As discussed before, the company was very optimistic about higher freight rates in the second half of the year and that remains unlikely.

Today only , foot locker (FL) High inventory level highlighted lowering financial targets. The shoe retailer will certainly reduce the demand for additional shipments of the likes Nike (NKE) next year. Foot Locker with sales and inventory down 25% doesn’t provide an ideal time to forecast a rebound in container freight rates.

away

The investor’s main takeaway is that a lot of investors still look bullish on ZIM even though the company doesn’t expect to report a profit for several years. The core investor base expects a dividend, and the container shipping company’s shift to losses could unleash the remaining bulls who expect additional dividends.