In recent concall they have mentioned their revenues will be muted for another 2 quarters given geo political issues. They informed upfront. Very good management. Given the cyclical nature of industry one should have exit framework while dealing with these sectors. Their LNG docks growing continuosly but overall business muted.
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- 30% of Market Cap is net cash.
- Management has the track record of being a great operator in the industry, with a mindset of good capital allocation regarding the vessels that they buy/sell/charter. Their preference is to sit on the cash for asset buying opportunities, rather than do a buyback or pay dividend. This is also affected by the taxes on dividend/buyback. The act of keeping a cash balance, especially when it is so high is somewhat of a drawback in my opinion.
- NAV should touch ₹1500/share this quarter, and the CMP is ₹900. That is a 40% discount to NAV.
- Crude and product tanker rates are experiencing a downturn, due to low GRMs and muted demand from China, while dry bulk and LPG are doing really well
- Co will have 2 rigs dry docked and unoperational, due to one contract expiring, and the other rig being in between jobs. Thus, the utilisation for thr rigs should be very low in the coming quarter, and then onwards it is dependent on winning a tender for the unoperational rig, and getting a new contract when the short-term one expires.
- The company has a good track record of buying vessels cheap and selling high, but this is still cyclical.
- Around a third of the revenues and margins come from the offshore subsidiary, Greatship.
- Order book looks optically high for product and LPG tankers, but the Co justifies it saying that most of it is as replacement for the older vessels, especially in product tankers.
- LPG rates are fixed with a Time Charter, but after that, there will be exposure to the existing spot rates. This is true for all segments, regardless of the current spot to fixed mix in the segment. This brings in a lot of uncertainty.
Now after all this halla-ho, I am just considering what is a fair price to buy this company? Also, am trying to understand what the triggers for value unlocking would be. And trying to ascertain a worst-case earnings scenario.
7 Likes
Hi can you tell me how did you arrive at the NAV? Is it same as book value because book value seems in 900s?
NAV is mentioned in their concalls. Recording is there on BSE.
Also on their investor presentations. Also available on BSE.
2 Likes
Ge ship have been selling older ships
They shall enter the mkt to buy when younger ships are valued fairly
Priced
NAV should drop at that time so shall earnings
Purchases of ships made at lower levels shall bring great returns in next shipping cycle
But has the current cycle ended
American oil to India and other consumption centres shall add ton miles to trade boosting revenue
On the other hand restricted world trade because of Trump policies and it’s ripple effects might dampen shipping rates
All in all complex situation and uncertain outcomes
Views are personal no recommendation intended
4 Likes
Anyone has idea about the jack-up oil rigs business of the company?
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My views on GE Shipping:
Business - GE Shipping is part of violently cyclical shipping industry, that follows typical commodity cycle, with extraordinary profitability for few years (say 5 years) due to high demand & limited supply, followed by glut in supply with abysmally low demand for many years (say 15 years).
Industry consists of multiple small players and no single player can change the industry dynamics. Entry barriers are very limited and anyone who smells money can order new ship that may be delivered in 3 years (rough estimate), and enter the market.
Last shipping cycle peaked in 2008, and since then there had been pain for 14 long years till 2022, post that, the demand is a bit better. Most of the shipping companies went bankrupt after 2008 cycle, and probably investor who has lived through the cycle would never like to enter shipping again.
GE Shipping during this time produced zero returns for 14 long years, the past is off-course painful.
When Industry is so brutal, should any sensible investor, even think of entering the industry?
Which brings us to second point:
Owner operator Management - Lets look at how management has executed in its history of 6 decades.
Few facts:
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GE shipping is one of the few companies that survived ruthless down cycle after 2008 and in fact grew stronger after it. You can see same pattern after every cycle during its history of 6 decades. Is it complete luck or there some Skill involved there?
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Operational Prudence - Based on my limited reading of the company, it has never leveraged its balance sheet that can bankrupt it in downcycle. It buys assets in downturn and patiently waits till conditions improve, and it gluts itself with cash when most players want to invest in assets.
They behave like value investors when it comes to buying, running and selling the ships.
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Capital allocation and buy back - When share price is in distress, management initiated buyback couple of times in the past. In the past Management has indicated that they were not inclined of buybacks because of 20% tax to be paid by the company, but now that the rules are changed with exiting investors paying the tax, management may be aggressive on buybacks when share price diverges considerably from underlying value.
The company has history of paying reasonable dividends for more than three decades. These actions looks like management is minority shareholder friendly.
Valuation : Being a commodity industry, I prefer to value the company on asset replacement cost rather than Earnings that fluctuates a lot.
Current assets are worth 20,000 Cr (16,000 Cr ships + 4,000 Net Cash), valued by market at 12,000 Cr, a discount of 40%. Another way to look at it is current NAV that’s Rs 1500 per share, valued by market at Rs 900 per share.
In fact, earnings of last 3 years (8,000 Cr) is 70% of the market cap. However, being part of commodity cycle, current earnings comes at 55% PAT margin and looks unsustainable in the future.
However, overall share price indicates that market does not respect the company, despite the current tide in industry’s / company’s favor.
Will it continue forever? I dont know. However, I do know that market changes its mood wildly sometimes. It did rerated hotels wildly when cycle turned in favor of industry post covid. Prior to that, talking to someone about investing in hotels was like insulting them 
Summary - GE Shipping is a company, where investor can bet on jockey (Management) and not on the horse (Business) at a price where odds are in your favor. My view is that management can run the cycles well based on past execution track record.
Disclaimer - Views are personal and biased, I am invested in the company and this post is not a recommendation to buy the stock.
24 Likes
Hello Folks,
New to the party, just like to add some points which i considered significant for considering valuation of a company.
- It has got all values a sustainable business should have i.e increase in sales (not massive) but a growing one, for operational stability a increase in profits followed by increase in margins.
- I think this is the most important point that is management agility to survive when the market goes downturn. this shows the approach that management is not massively aggressive towards their approach.
- company is profitable followed by consistent cashflows.
What goes against the company?
->Though the company has cashflows, we cannot see a type of deployment that can lead to incremental growth, well its a dividend paying company the company is lacking on its part of deployment of capital and NEVER forget, the market cap covers 45% to 50% of cash so its a cash rich company.
→ one more point regarding holdings, i think its the mutual funds who are selling making it cheap to buy at such levels.
Moreover,This is a text book stock of benjamin graham’s approach where it is suggesting that it is available at Margin of safety levels.
Disclaimer- Invested and biased at these levels.
3 Likes
A simple back on the envelope valuation approach for such typical cyclical stock is to consider long term RoE vs current P/B.
10 yr RoE = 11%
current P/B = 0.91
So expected investor return = 11/0.91 = 12%
It would be safer if P/B becomes 0.75 such that investor return = 11/0.75 = 15%.
Can initaite buy now just to be in watchlist and can be added aggressively if stock gets cheaper by another 15%.
12 Likes
The conservative stance of GESCO with huge cash reserves, strong balance sheet profiles with traditional roots of institutionalised affiliations of human capital production. The loop of asset allocations and comfortability in market gyrations will create GE Shipping an upper hand when the next shipping boom occurs. Small in size, quality in business management, even-off growth in earnings over long periods, longevity oriented and the price is favourable for adequate returns. The management does not forecast or gives an earning projection for their shareholders [with their first statement in their quarterly calls] keeping the expectations low. Dividend yielding potential and a stance of “Low risk and high uncertainty conditions” payoff belief which trades below its intrinsic value.
The borrowings are dollar swapped with debt to equity of 0.21. The mutual funds are rejecting
the idea of having their portfolio in a highly cyclical sector and it’s not a buzzword (AI,BlockChain,Automation). Aggression when the market panics and unwillingness for greed to
take over is GESCO asset allocation principles. Anti Reciprocation tendency of GESCO is a long term asset in a fluctuating business. Pre-commitment to buy order of vessels depending on availability of cash and backtesting the decision making process is a positive. With a PEG of 0.03 and with earning potential when the cycle flips and their conservative stance makes GESCO undervalued in comparison to the overall market and peers.
How do I think about owning GESCO ?
GESCO needs absolute patience, if you are invested in GESCO, right now it is a deep value play, I like to think I am business owner of GESCO, as management is not planning to go all cash, GESCO is a position where you value survival than growth, when the market bleeds red (one day it will), I like to be in a position where there is huge down side protection to be psychologically attentive and not react to any panic sells. With a honest management, clean balance sheet and issue trading under its intrinsic value gives me that, they care about their shareholders[they haven’t diluted shares that much in like 10+ years] and they openly admit their mistakes. I am more comfortable to know that I have a clear margin of safety and my money is with operator oriented management.
Will be invested for next 5 years.
[ decisions might be biased, this is not an investment advice of any kind]
Thanks for reading!
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A Simple Warren Buffet’s mental model: [ Which might apply to GESCO according to me ]
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Buffet interest in insurance started at 1967, at National Indemnity (an insurance subsidiary of Berkshire Hathaway), the firm’s ability to write insurance only when the pricing is good and stand back when pricing is poor, even if revenue declines by 80% and remain depressed for many years is a wonderful example of capital discipline and good capital allocation.
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It is not that easy to resist the urge grow with cash in balance sheet, but GESCO’s management is very patient in finding carriers which are new and cheap, replacing their older fleet. Internationally GESCO’s fleet on average is still considered as “Old” (Please do your research in other company’s tankers (single hull carriers)). With the LPG segment projects strong tailwinds in FY’26 and FY’27 (according to latest presentation), I see the GESCO is preparing for fleet allocation phase. (which is evident in their latest fleet acquisition)
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Then why the market has not acknowledged GESCO’s value ? the answer lies in the shipping rates, the market values GESCO in terms of how the management is going to capture the next uptrend if the on-spot rates increase in the future. The three metrics which determines that are
- Diversified exposure to tankers (and age of fleet)
- Their ability to pull contracts (ideally longterm)
- Maintain operating cost when the shipping rates crumble (downside protection)
GESCO is ideally positioned to do all three and have historically done these three well.
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Why I did not include NAV = 1400 in the list as a key catalyst, because the management is not focused to provide highest ROE to shareholders, they are focused on responsibly spending the equity money if opportunity comes in the future. They have no say on how the stock should be valued. The conservative stance is a cherry on cake which mimics “National Indemnity” like capital discipline ethos in GESCO.
Disclaimer: The above are opinions and are not financial advice of any kind. Currently invested in GESCO. Kindly do your own research.
Thanks for reading!
6 Likes
GRT article. Would like to add they generally like to keep fleet on day rates during bullish tariffs periods and slowly /partly shift to long term contracts when visibility of future shipping rates is poor.
Discount to their nav is because world shipping are at crossroads.
At one end most countries are going in for indigenous productions and swaying away from multilateralism (big negative)
At the other end USA will push its oil and gas to India adding ton miles
New potential sea routes are opening around arctic and yet scrapping rates have come and only a little management is cautious so are investors
Happy investing
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GE ship fleets are ageing. Its time that they start upgrading their shipping fleet.Even though they have enough cash in hand they are waiting to upgrade because they think the price is not right for buying ships.That means they are expecting the shipping market will cool down more.When the ship prices further fall the NAV is going to drop.Maybe the market is waiting for this event to happen
3 Likes