ZIM Ingegreted: Forget dividends, stocks are too cheap
$ZIM Integrated Shipping(ZIM.US$ rundown
Due to falling freight rates and the outlook for the container market, I don't expect ZIM's adjusted EBITDA and free cash flow even close to their levels in 2023.
The company was unable to pay a high dividend in 2023. However, you don't need to buy a stock just because the dividends are high.
The stock's current price is down 70% year over year, and 80% below its all-time high in March 2022.
ZIM's container capacity increased in the first quarter of 2023, and the company's chartering strategy enabled it
Due to falling freight rates and the outlook for the container market, I don't expect ZIM's adjusted EBITDA and free cash flow even close to their levels in 2023.
The company was unable to pay a high dividend in 2023. However, you don't need to buy a stock just because the dividends are high.
The stock's current price is down 70% year over year, and 80% below its all-time high in March 2022.
ZIM's container capacity increased in the first quarter of 2023, and the company's chartering strategy enabled it
It can benefit from the improved market conditions expected in the second half of 2023 and the first half of 2024.
It is expected that by the second half of 2021, container freight rates will not even approach current levels. In its 2020 financial results, ZIM Integrated Shipping Services (NYSE: ZIM) expects its adjusted EBITDA for the full year of 2021 to be between $1.4 billion and $1.6 billion. However, due to an unexpected increase in container freight rates, the company reported an adjusted EBITDA of $6.6 billion, 340% higher than expected. As container freight rates remained significantly high in the first nine months of 2022, the company reported an adjusted EBITDA of $7.5 billion in 2022. Container freight rates have declined due to high inflation, high energy prices, reduced consumer purchasing power, and reduced port congestion. However, the company still expects its adjusted EBITDA to be higher than the adjusted EBITDA forecast for 2021. Furthermore, due to falling inflation, container trade volume may begin to increase by the second half of 2023, supporting demand for container ships and container freight rates. Despite deteriorating container market conditions over the past two quarters, ZIM has increased its container capacity.
On June 12, 2022 and November 16, 2022, ZIM's total capacity was 475,000 TEUs (94.0% chartered) and 538,000 TEUs (94.7% chartered). As of April 7, 2023, ZIM's capacity was 567,000 TEUs (94.9% of chartered). ZIM's chartering strategy worked very well for the company. At a time when the market is weak, using higher charters to increase container capacity means that even under unfavorable container market conditions, ZIM can rent ships at profitable rates, expand its business and trade routes, and prepare for more favorable market conditions in the second half of 2023. With ZIM's dividend distribution on April 3, its stock price fell 25% over the past week. It is true that ZIM's high dividend is unlikely to be realized in 2023 or even 2024. However, you don't have to buy a stock just because the dividends are high, especially when it's too cheap. Based on ZIM's sharp drop in share price, its future EV/EBITDA, and the company's niche strategy, ZIM stock is a strong target to buy.
Financial performance
In financial results for the fourth quarter and the full year of 2022, ZIM's revenue was $12.6 billion, compared to $10.8 billion in 2021. This was due to an increase in average freight rates, which was partly offset by a drop in traffic volume. The company reported an adjusted EBITDA of $7.5 billion in 2022, an increase of 14.3% year over year. Additionally, ZIM's net cash from operating activities and free cash flow grew to $6.1 billion (up 2.3% year over year) and $5.8 billion (up 18.8% year over year), respectively. ZIM paid shareholders $2.04 billion in dividends, representing 44% of its total revenue in 2022.
“2022 was an extraordinary year for ZIM as it leveraged its differentiation strategy and attractive markets to drive record adjusted EBITDA and EBIT results throughout the year. Returning cash to shareholders remains our company's top priority.” He continued: “While macroeconomic uncertainty, sharp declines in freight rates over the past few months, and supply and demand imbalances continue to drive the short-term outlook for container shipping, we are confident in ZIM's strategy and believe we will achieve positive EBIT in 2023.”
After experiencing the downturn in 2020, ZIM picked up its strength and achieved a good recovery in 2021 and 2022. The company's cash balance soared significantly, reaching $3.6 billion and $3.2 billion in 2021 and 2022, respectively. Similarly, its equity level rose spectacularly to $5.9 billion in 2022, compared to $4.6 billion at the end of 2021. At the same time, ZIM's debt level has also risen. Its total debt jumped from $1.8 billion at the end of 2020 to $4.3 billion in 2022. As a result, after falling sharply to $365 in 2021, the company's net debt increased to over $1 billion by the end of 2022. Thankfully, the company's net debt level is far below its level of cash generation and equity, which can adjust a certain range of capabilities, benefit shareholders, and absorb upcoming risks. ZIM Integrated's capital structure is promising (see Figure 1).
Figure 1 - ZIM's capital structure (in millions)
It is expected that by the second half of 2021, container freight rates will not even approach current levels. In its 2020 financial results, ZIM Integrated Shipping Services (NYSE: ZIM) expects its adjusted EBITDA for the full year of 2021 to be between $1.4 billion and $1.6 billion. However, due to an unexpected increase in container freight rates, the company reported an adjusted EBITDA of $6.6 billion, 340% higher than expected. As container freight rates remained significantly high in the first nine months of 2022, the company reported an adjusted EBITDA of $7.5 billion in 2022. Container freight rates have declined due to high inflation, high energy prices, reduced consumer purchasing power, and reduced port congestion. However, the company still expects its adjusted EBITDA to be higher than the adjusted EBITDA forecast for 2021. Furthermore, due to falling inflation, container trade volume may begin to increase by the second half of 2023, supporting demand for container ships and container freight rates. Despite deteriorating container market conditions over the past two quarters, ZIM has increased its container capacity.
On June 12, 2022 and November 16, 2022, ZIM's total capacity was 475,000 TEUs (94.0% chartered) and 538,000 TEUs (94.7% chartered). As of April 7, 2023, ZIM's capacity was 567,000 TEUs (94.9% of chartered). ZIM's chartering strategy worked very well for the company. At a time when the market is weak, using higher charters to increase container capacity means that even under unfavorable container market conditions, ZIM can rent ships at profitable rates, expand its business and trade routes, and prepare for more favorable market conditions in the second half of 2023. With ZIM's dividend distribution on April 3, its stock price fell 25% over the past week. It is true that ZIM's high dividend is unlikely to be realized in 2023 or even 2024. However, you don't have to buy a stock just because the dividends are high, especially when it's too cheap. Based on ZIM's sharp drop in share price, its future EV/EBITDA, and the company's niche strategy, ZIM stock is a strong target to buy.
Financial performance
In financial results for the fourth quarter and the full year of 2022, ZIM's revenue was $12.6 billion, compared to $10.8 billion in 2021. This was due to an increase in average freight rates, which was partly offset by a drop in traffic volume. The company reported an adjusted EBITDA of $7.5 billion in 2022, an increase of 14.3% year over year. Additionally, ZIM's net cash from operating activities and free cash flow grew to $6.1 billion (up 2.3% year over year) and $5.8 billion (up 18.8% year over year), respectively. ZIM paid shareholders $2.04 billion in dividends, representing 44% of its total revenue in 2022.
“2022 was an extraordinary year for ZIM as it leveraged its differentiation strategy and attractive markets to drive record adjusted EBITDA and EBIT results throughout the year. Returning cash to shareholders remains our company's top priority.” He continued: “While macroeconomic uncertainty, sharp declines in freight rates over the past few months, and supply and demand imbalances continue to drive the short-term outlook for container shipping, we are confident in ZIM's strategy and believe we will achieve positive EBIT in 2023.”
After experiencing the downturn in 2020, ZIM picked up its strength and achieved a good recovery in 2021 and 2022. The company's cash balance soared significantly, reaching $3.6 billion and $3.2 billion in 2021 and 2022, respectively. Similarly, its equity level rose spectacularly to $5.9 billion in 2022, compared to $4.6 billion at the end of 2021. At the same time, ZIM's debt level has also risen. Its total debt jumped from $1.8 billion at the end of 2020 to $4.3 billion in 2022. As a result, after falling sharply to $365 in 2021, the company's net debt increased to over $1 billion by the end of 2022. Thankfully, the company's net debt level is far below its level of cash generation and equity, which can adjust a certain range of capabilities, benefit shareholders, and absorb upcoming risks. ZIM Integrated's capital structure is promising (see Figure 1).
Figure 1 - ZIM's capital structure (in millions)
A survey of ZIM's cash structure showed that its operating cash increased slightly in 2022, from US$5.9 billion at the end of 2021 to US$6.1 billion. On the other hand, its capital expenditure fell from $1 billion in 2021 to $346 million in 2022. The company generated huge free cash flow of $5.7 billion in 2022, compared to $4.9 billion at the end of 2021. As a result, the company was able to declare a cash dividend of approximately $769 million, or $6.4 per share, which is approximately 44% of net revenue for the year (see Figure 2).
Figure 2 - ZIM's Cash Structure (in millions)
Figure 2 - ZIM's Cash Structure (in millions)
Additionally, I looked at ZIM Integrated's profitability ratios in this section to assess the extent to which the company can be profitable and use its assets to make money for investors. I've checked profit margins to provide useful insight into the company's financial health. To be more helpful, I've calculated the ratio compared to recent years.
Generally speaking, profit margin assesses a company's ability to turn revenue into profit from several aspects. This shows that compared to 2020 and before, ZIM's profit margin in 2021 and 2022 was much higher. In terms of details, ZIM Integrated's total revenue increased 17% from $10.7 billion in 2021 to $12.5 billion in 2022. Additionally, the company's profit and EBITDA levels have improved, leading to margins slightly lower than in 2021.
In 2022, ZIM's gross margin was 62%, slightly lower than 63.5% at the end of 2021. Furthermore, the company's 2022 EBITDA margin was 49.5%, 521 basis points lower than the previous year's 54.6%. As a result, ZIM Integrated could boost its revenue and profits in 2022. Although its profit margin is slightly lower than in 2021, it is enough to demonstrate the company's ability to generate revenue in the future (see Figure 3).
Figure 3 - ZIM's Profit Margin
Generally speaking, profit margin assesses a company's ability to turn revenue into profit from several aspects. This shows that compared to 2020 and before, ZIM's profit margin in 2021 and 2022 was much higher. In terms of details, ZIM Integrated's total revenue increased 17% from $10.7 billion in 2021 to $12.5 billion in 2022. Additionally, the company's profit and EBITDA levels have improved, leading to margins slightly lower than in 2021.
In 2022, ZIM's gross margin was 62%, slightly lower than 63.5% at the end of 2021. Furthermore, the company's 2022 EBITDA margin was 49.5%, 521 basis points lower than the previous year's 54.6%. As a result, ZIM Integrated could boost its revenue and profits in 2022. Although its profit margin is slightly lower than in 2021, it is enough to demonstrate the company's ability to generate revenue in the future (see Figure 3).
Figure 3 - ZIM's Profit Margin
Market outlook
According to Figure 4, Drury's Composite World Container Index (WCI) is now down 79% year over year. Furthermore, compared to the peak of $10,377 per 40-foot container in September 2021, WCI is now down 84%. So far this year, the average composite index is $1,923 per 40-foot container, which is 36% lower than the 10-year average. Container freight rates declined in the first three months of 2022 and 2023 due to global economic challenges, high inflation and high interest rates, which led to a decline in consumer purchasing power. In the US and European countries, inflation was the main reason for the decline in demand for goods and the increase in the inventory sales ratio in 2023. In February 2023, the US annual inflation rate fell to 6%, the lowest since September 2021. Furthermore, in February 2022, US consumers' inflation expectations for the coming year fell to 4.2%, the lowest level since May 2021. Furthermore, US import prices fell further in February 2023 (see Figure 5). As the central bank's monetary policy continues to tighten, inflation is likely to fall further in 2024, boosting demand for shipping container trade.
In 2023, driven by increased demand in the second half of the year, global container trade volume is likely to be higher than in 2022. According to WTO data, world merchandise trade volume is expected to grow by 1.7% in 2023 and 3.2% in 2024 (Figure 6). According to estimates by Danaos Shipping (DAC), one of the largest container ship owners, the world's container trade volume will increase from 213 million teu in 2022 to 218 million teu in 2023, an increase of 2.2% over the previous year. Notably, DAC's contract backlog with ZIM amounts to $126 million by 2028. However, another large container ship owner, Navios Maritime Partners (NMM), said that world shipping container trade volume fell 3.8% in 2022, and is expected to drop 1.6% in 2023 and increase by 3.3% in 2024. Notably, NNM's contract revenue with ZIM was $865 million. Based on current market and economic conditions, I expect demand for maritime trade in the second half of 2023 to be better than in the first half of 2023, and further improve in the first half of 2024. As a result, container freight rates are likely to rise.
Figure 4 - Drury's Composite World Container Index
According to Figure 4, Drury's Composite World Container Index (WCI) is now down 79% year over year. Furthermore, compared to the peak of $10,377 per 40-foot container in September 2021, WCI is now down 84%. So far this year, the average composite index is $1,923 per 40-foot container, which is 36% lower than the 10-year average. Container freight rates declined in the first three months of 2022 and 2023 due to global economic challenges, high inflation and high interest rates, which led to a decline in consumer purchasing power. In the US and European countries, inflation was the main reason for the decline in demand for goods and the increase in the inventory sales ratio in 2023. In February 2023, the US annual inflation rate fell to 6%, the lowest since September 2021. Furthermore, in February 2022, US consumers' inflation expectations for the coming year fell to 4.2%, the lowest level since May 2021. Furthermore, US import prices fell further in February 2023 (see Figure 5). As the central bank's monetary policy continues to tighten, inflation is likely to fall further in 2024, boosting demand for shipping container trade.
In 2023, driven by increased demand in the second half of the year, global container trade volume is likely to be higher than in 2022. According to WTO data, world merchandise trade volume is expected to grow by 1.7% in 2023 and 3.2% in 2024 (Figure 6). According to estimates by Danaos Shipping (DAC), one of the largest container ship owners, the world's container trade volume will increase from 213 million teu in 2022 to 218 million teu in 2023, an increase of 2.2% over the previous year. Notably, DAC's contract backlog with ZIM amounts to $126 million by 2028. However, another large container ship owner, Navios Maritime Partners (NMM), said that world shipping container trade volume fell 3.8% in 2022, and is expected to drop 1.6% in 2023 and increase by 3.3% in 2024. Notably, NNM's contract revenue with ZIM was $865 million. Based on current market and economic conditions, I expect demand for maritime trade in the second half of 2023 to be better than in the first half of 2023, and further improve in the first half of 2024. As a result, container freight rates are likely to rise.
Figure 4 - Drury's Composite World Container Index
Figure 5 - US Inflation Rate, Consumer Inflation Expectations, and Import Prices
Figure 6 - World Merchandise Trade Volume and GDP Growth
risks
High inflation rates are falling due to tight monetary policies in the US and the European Central Bank. However, high interest rates and uncontrolled monetary policy may destabilize the financial system, thereby negatively affecting consumers' purchasing power. Therefore, the side effects of high interest rates should be closely watched. Furthermore, the net fleet growth rate is expected to be 6.7% in 2023 and 5.5% in 2024 (according to NMM's container industry overview). Furthermore, the remaining port congestion may be fully resolved in 2023. If the supply of container ships grows more than the demand for container ships, the market outlook may be unfavorable for ZIM.
summed
The company's 2022 profit and EBITDA margins were 62% and 49%, respectively. Furthermore, its free cash flow increased significantly, enabling management to declare high dividends. Now, market conditions have changed, and the company's free cash flow for 2023 is expected to be far lower than 2022. So forget about ZIM's high dividends. However, there is one more thing you should pay attention to: ZIM's low share price. Based on the company's increasing production capacity, reduced inflation, and increased shipping trade, ZIM will remain profitable in 2023 and prepare for stronger market conditions in 2024.
fundamentals
ZIM Integrated Shipping maintained earnings of $38.49 per share. Additionally, the company's return on invested capital was 52.13%. The stock's dividend yield was 116.84%. These values were calculated over the past 12 months.
As of the close of the previous trading day, ZIM Integrated Shipping's price-earnings ratio was 0.61, lower than the industry's 5th percentile (lower percentile means lower ratio). The price-earnings ratio for the past year was between 0.33 and 1.86. The company's price-to-free cash flow ratio of 0.49 fell to the 5th percentile in the industry, hovering between 0.3 and 1.74 over the past year.
valuing
ZIM Integrated Shipping received a 3 star quantitative star rating based on the Morningstar stock model. This reflects the company's valuation and uncertainty score under this evaluation system.
High inflation rates are falling due to tight monetary policies in the US and the European Central Bank. However, high interest rates and uncontrolled monetary policy may destabilize the financial system, thereby negatively affecting consumers' purchasing power. Therefore, the side effects of high interest rates should be closely watched. Furthermore, the net fleet growth rate is expected to be 6.7% in 2023 and 5.5% in 2024 (according to NMM's container industry overview). Furthermore, the remaining port congestion may be fully resolved in 2023. If the supply of container ships grows more than the demand for container ships, the market outlook may be unfavorable for ZIM.
summed
The company's 2022 profit and EBITDA margins were 62% and 49%, respectively. Furthermore, its free cash flow increased significantly, enabling management to declare high dividends. Now, market conditions have changed, and the company's free cash flow for 2023 is expected to be far lower than 2022. So forget about ZIM's high dividends. However, there is one more thing you should pay attention to: ZIM's low share price. Based on the company's increasing production capacity, reduced inflation, and increased shipping trade, ZIM will remain profitable in 2023 and prepare for stronger market conditions in 2024.
fundamentals
ZIM Integrated Shipping maintained earnings of $38.49 per share. Additionally, the company's return on invested capital was 52.13%. The stock's dividend yield was 116.84%. These values were calculated over the past 12 months.
As of the close of the previous trading day, ZIM Integrated Shipping's price-earnings ratio was 0.61, lower than the industry's 5th percentile (lower percentile means lower ratio). The price-earnings ratio for the past year was between 0.33 and 1.86. The company's price-to-free cash flow ratio of 0.49 fell to the 5th percentile in the industry, hovering between 0.3 and 1.74 over the past year.
valuing
ZIM Integrated Shipping received a 3 star quantitative star rating based on the Morningstar stock model. This reflects the company's valuation and uncertainty score under this evaluation system.
The quantitative fair value valuation was 38.77, higher than the previous closing price of 23.58. Over the past year, the stock traded at a discount of 64.59% to 5.76% off its quantitative fair value. The stock's current valuation rating is in the 34th percentile of coverage and the 22nd percentile in the industrial sector (the higher the percentile, the higher the degree of undervaluation).
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Bentheking : Financial analysis for ZIM has to be done on QoQ basis. The steepest of freight rate collapse is way too much and with falling demand, better run when price rebound.
This quarter revenue for sure dipped below 2B my best guess in between 1.2B to 1.4B only, OI for sure impact big time and will no longer a celebrity stocks after this.
My company shipment to US and Canada freight rate is now even cheaper than pre-pandemic, shipping line is not looking great.