I love the idea of combination of bulk and liquid, because if one pays attention - liquids going from PG-India-Far East to Atlantic are basically a backhaul for dry bulk. KCC does not simply minimise ballast legs but is employing its ships on the most profitable routes.
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In this respect insights from chartering executives are priceless!
Yes indeed. A natural fit, that way of cutting out inefficiencies, such a great idea. AND the co is trading at a discount AND governance is great.
If we get a 'double bull' next year (product + dry) it could be super well-positioned.
Q4 should be a beat, perhaps Q1 2024 as well if they are getting coverage. But with markets not 'cooperating' at the moment it may continue to trade down for now, hard to say. Let's keep an eye out...
Awesome Ed, love the idea. It could be like a positive carry waiting for the inevitable dry bulk bull.
Any thoughts on how to value these guys? The usual approach of using actual second hand prices to calculate a NAV isn't gonna work. I have two thoughts:
1. NAV should be the market's DCF calc on all future earnings, so we could just try to do that instead.
2. Since these ships can operate as either dry or clean, the market value of whichever equivalent ship is currently trading highest would seem a conservative approach.
Finally, it appears they are Norway incorporated, so we're looking at Norwegian withholding on the dividends?
It's important to keep in mind that there is, in theory, almost no liquid secondhand market for their vessels.
As with STSU and other Norwegian cos, I have personally never had part of the dividend withheld, but that will depend on your personal situation (nor with Dnord, I should mention).
"It's important to keep in mind that there is, in theory, almost no liquid secondhand market for their vessels."
Is that strictly true? Engebret mentioned how they had sold one of their older ships as dry bulker after removing all the pipes and pumps associated with the tanker mode. Given the quality of holds that would be required for the CPP trade, they are probably quite good dry bulkers, no?
But you're right, it would probably be considerably harder to sell into the clean tanker market.
That is interesting note on the Norwegian dividend withholding. I wonder if you're getting favourable treatment being a European?
For other Aussies, I note that Australia and Norway do have a tax treaty:
“The new Treaty will ... substantially reduce the withholding tax on certain dividend, interest and royalty payments to provide similar outcomes to Australia’s treaty arrangements with the United States and the United Kingdom.”
Withholding on dividends from the US for me is 15%.
What I meant is not that they would not be able to sell the vessels. It's that there are so few such transactions that it makes it difficult to assess/verify what they would be sold for.
Not saying it's a 'risk' necessary -- more that it's mostly unchartered territory.
perhaps more details in the Quarterly report just afterwards and/or annual report? the sale was in October 2021, so that would be Q4 2021 report, published in February 2022-ish.
Great podcast - I'm just dipping my toes into understanding shipping, and found this informative and well structured, though I imagine people with a much deeper understanding would have taken a lot away from it as well. Thank you!
Thank you, Ed
Great idea and great execution!
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I love the idea of combination of bulk and liquid, because if one pays attention - liquids going from PG-India-Far East to Atlantic are basically a backhaul for dry bulk. KCC does not simply minimise ballast legs but is employing its ships on the most profitable routes.
--
In this respect insights from chartering executives are priceless!
Kudos!
Yes indeed. A natural fit, that way of cutting out inefficiencies, such a great idea. AND the co is trading at a discount AND governance is great.
If we get a 'double bull' next year (product + dry) it could be super well-positioned.
Q4 should be a beat, perhaps Q1 2024 as well if they are getting coverage. But with markets not 'cooperating' at the moment it may continue to trade down for now, hard to say. Let's keep an eye out...
Excellent job, both of you. Very clear on trade-offs, strengths and weaknesses. Delighted to have the cleaning part cleaned and ironed out.
Thanks Ingolf!
Great podcast. Business model and capital allocation described with a lot of clarity.
Cherry on the cake: very good sound quality.
Thanks Eric! The sound quality is very much thanks to Klaveness, they have a good set-up in their (beautiful) offices in Oslo.
Good stuff, Ed! Rising star in the land of shipping ✌️
Awesome Ed, love the idea. It could be like a positive carry waiting for the inevitable dry bulk bull.
Any thoughts on how to value these guys? The usual approach of using actual second hand prices to calculate a NAV isn't gonna work. I have two thoughts:
1. NAV should be the market's DCF calc on all future earnings, so we could just try to do that instead.
2. Since these ships can operate as either dry or clean, the market value of whichever equivalent ship is currently trading highest would seem a conservative approach.
Finally, it appears they are Norway incorporated, so we're looking at Norwegian withholding on the dividends?
I agree in principle with both 1. and 2.
It's important to keep in mind that there is, in theory, almost no liquid secondhand market for their vessels.
As with STSU and other Norwegian cos, I have personally never had part of the dividend withheld, but that will depend on your personal situation (nor with Dnord, I should mention).
"It's important to keep in mind that there is, in theory, almost no liquid secondhand market for their vessels."
Is that strictly true? Engebret mentioned how they had sold one of their older ships as dry bulker after removing all the pipes and pumps associated with the tanker mode. Given the quality of holds that would be required for the CPP trade, they are probably quite good dry bulkers, no?
But you're right, it would probably be considerably harder to sell into the clean tanker market.
That is interesting note on the Norwegian dividend withholding. I wonder if you're getting favourable treatment being a European?
For other Aussies, I note that Australia and Norway do have a tax treaty:
“The new Treaty will ... substantially reduce the withholding tax on certain dividend, interest and royalty payments to provide similar outcomes to Australia’s treaty arrangements with the United States and the United Kingdom.”
Withholding on dividends from the US for me is 15%.
https://ministers.treasury.gov.au/ministers/peter-dutton-2006/media-releases/australia-norway-sign-revised-tax-treaty
What I meant is not that they would not be able to sell the vessels. It's that there are so few such transactions that it makes it difficult to assess/verify what they would be sold for.
Not saying it's a 'risk' necessary -- more that it's mostly unchartered territory.
Look at the age of the oldest four vessels:
https://www.combinationcarriers.com/fleet
Great that they are continuing to operate currently, but future outcomes are more uncertain than with pure-play product tanker or bulker fleets.
Now I'm super curious how much they sold that vessel for. I'll see if I can hunt it down.
perhaps more details in the Quarterly report just afterwards and/or annual report? the sale was in October 2021, so that would be Q4 2021 report, published in February 2022-ish.
https://www.klaveness.com/news/2021/10/18/klaveness-combination-carriers-sells-a-21-years-old-cabu-vessel-in-a-historically-strong-dry-bulk-market
MV Banasol (2001) 72 562 DWT was sold in October of 2021 as a 21 year old dry bulker. Price paid looks to be USD10.6M.
Is that equivalent to a Panamax? Do you have access to historical Panamax sales data from then?
Thanks a very Lot Edfin
Great podcast debut Ed! I have no idea why you waited so long and was expecting a more gravelly voice (from those cigars! 😉)
I wasn't hung–over enough (that was the following day)
Great podcast - I'm just dipping my toes into understanding shipping, and found this informative and well structured, though I imagine people with a much deeper understanding would have taken a lot away from it as well. Thank you!
Thanks Robbie! Glad it was comprehensible.
Congrats on first podcast. I learn something new every day. Combination carriers , what a great idea! I never knew this ship type.
Fascinating, thanks Ed!
Thanks listening Elliot!
Love it! Congrats on your first Podcast shipping episode.
Thank you!
OBO's. ?
https://www.marineinsight.com/types-of-ships/obo-vessels-rise-and-fall/