ATCO - Atlas Corp

[bluedevil]

I believe this is precisely why ATCO under Chen/Sokol has focused like a laser beam on mid-size ships.  I can't actually recall them purchasing a ship that was outside the mid-size category in recent years.  It has the best shot of having good use for years to come.  Since December 2019, Atlas has acquired 19 ships (including the recent newbuilds).  All I believe have been in the 10-14k category. 

[petec]

I believe this is precisely why ATCO under Chen/Sokol has focused like a laser beam on mid-size ships.  I can't actually recall them purchasing a ship that was outside the mid-size category in recent years.  It has the best shot of having good use for years to come.  Since December 2019, Atlas has acquired 19 ships (including the recent newbuilds).  All I believe have been in the 10-14k category.

 

Good point!

[Xerxes]

i'll check the podcast.

 

Another point about shipping. dont know if it was mentioned in the podcast or anywhere here.

 

The price of steel is a big variable as well. After 2008-09 collapse of commodity cycle, steel was crushed for years and years due to overcapacity both in China for the mills as well as over production of iron ore from the big three.

 

The way it plays a role has to do with the "salvage value" of old ships. The lower is the price of steel, less interested are the ship owners to capture its break-up value, so that over capacity lingers for years and years in the shipping industry. The higher steel prices go, there is a big incentive for the owners to break up their old ships. Price steel naturally is somewhat correlated with GDP, therefore, there is a feedback loop that tends to provide incentive remove old ships exactly as the economy is about to pick up and inversely, the overcapacity lingers exactly when you don't need it.

 

 

 

 

[matthew2129]

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

[petec]

Less financial disclosure on these than before. Will be interesting to see what they say on the call. But the re-emergence of newbuilds and 18y leases says something about the market.

 

Btw does anyone know whether leases tend to be inflation-linked?

[ourkid8]

Amazing news, the next issue is how will these new builds be funded?  Based on the last funding for the new builds, the market was not happy however it was a buying opportunity.  I am really hoping Sokol eliminates the dividend and the new builds can be funded through internal cash generation + debt.   

 

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

[petec]

Amazing news, the next issue is how will these new builds be funded?  Based on the last funding for the new builds, the market was not happy however it was a buying opportunity.  I am really hoping Sokol eliminates the dividend and the new builds can be funded through internal cash generation + debt.   

 

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

 

Well they’re generating $700m of FFO a year and that’s probably rising given their spot exposure in smaller ships, so given there’s 2 years before delivery I suspect they’ve got it covered ;)

 

I’d be surprised if they cut the divi but you never know. 

[ourkid8]

There is a total of 7 new builds and each builds costs roughly $200-250m by my estimates. There is also a down payment or payment structure payments which need to be made before you receive delivery in 2023. This is a significant investment before we reap the benefits.

 

Dec 7 - 5 new builds

Feb 8 - 2 new builds

 

Amazing news, the next issue is how will these new builds be funded?  Based on the last funding for the new builds, the market was not happy however it was a buying opportunity.  I am really hoping Sokol eliminates the dividend and the new builds can be funded through internal cash generation + debt.   

 

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

 

Well they’re generating $700m of FFO a year and that’s probably rising given their spot exposure in smaller ships, so given there’s 2 years before delivery I suspect they’ve got it covered ;)

 

I’d be surprised if they cut the divi but you never know.

[Castanza]

There is a total of 7 new builds and each builds costs roughly $200-250m by my estimates. There is also a down payment or payment structure payments which need to be made before you receive delivery in 2023. This is a significant investment before we reap the benefits.

 

Dec 7 - 5 new builds

Feb 8 - 2 new builds

 

Amazing news, the next issue is how will these new builds be funded?  Based on the last funding for the new builds, the market was not happy however it was a buying opportunity.  I am really hoping Sokol eliminates the dividend and the new builds can be funded through internal cash generation + debt.   

 

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

 

Well they’re generating $700m of FFO a year and that’s probably rising given their spot exposure in smaller ships, so given there’s 2 years before delivery I suspect they’ve got it covered ;)

 

I’d be surprised if they cut the divi but you never know.

 

What is the completion time on these ships?

[ourkid8]

Dec 7 order, no dates specified

Feb 8 order, first half of 2023

 

There is a total of 7 new builds and each builds costs roughly $200-250m by my estimates. There is also a down payment or payment structure payments which need to be made before you receive delivery in 2023. This is a significant investment before we reap the benefits.

 

Dec 7 - 5 new builds

Feb 8 - 2 new builds

 

Amazing news, the next issue is how will these new builds be funded?  Based on the last funding for the new builds, the market was not happy however it was a buying opportunity.  I am really hoping Sokol eliminates the dividend and the new builds can be funded through internal cash generation + debt.   

 

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

 

Well they’re generating $700m of FFO a year and that’s probably rising given their spot exposure in smaller ships, so given there’s 2 years before delivery I suspect they’ve got it covered ;)

 

I’d be surprised if they cut the divi but you never know.

 

What is the completion time on these ships?

[petec]

FWIW Stifel estimated $100m for each of the first 5.

[ourkid8]

Even better, i was searching on google the cost of ships around this size. 

 

FWIW Stifel estimated $100m for each of the first 5.

[Castanza]

This issue with this many ships in my opinion is the ability to forecast growth and volume so far out. If these ships aren't productive then they become a burden really quick.

[petec]

This issue with this many ships in my opinion is the ability to forecast growth and volume so far out. If these ships aren't productive then they become a burden really quick.

 

Yes, but for the lessee, not the lessor, unless things get really bad.

 

Personally I think we are in the early days of a tight market so I’m not too worried. But the trick will be to sell when a decent chunk of good news is priced in.

[ourkid8]

You do not feel Atlas is a long term multibanger?  One of the main reasons for purchasing APR was to smooth out Seaspan earnings in down years.

 

Personally I think we are in the early days of a tight market so I’m not too worried. But the trick will be to sell when a decent chunk of good news is priced in.

[Saluki]

There is a total of 7 new builds and each builds costs roughly $200-250m by my estimates. There is also a down payment or payment structure payments which need to be made before you receive delivery in 2023. This is a significant investment before we reap the benefits.

 

Dec 7 - 5 new builds

Feb 8 - 2 new builds

 

Amazing news, the next issue is how will these new builds be funded?  Based on the last funding for the new builds, the market was not happy however it was a buying opportunity.  I am really hoping Sokol eliminates the dividend and the new builds can be funded through internal cash generation + debt.   

 

Looks like two new 24,000 TEU containerships w/ 18-year charters already in-hand coming down the pipeline:

 

https://money.tmx.com/en/quote/ATCO:US/news/6772865933268371/Seaspan_Announces_Newbuild_Order_for_Two_24000_TEU_Containerships

 

Well they’re generating $700m of FFO a year and that’s probably rising given their spot exposure in smaller ships, so given there’s 2 years before delivery I suspect they’ve got it covered ;)

 

I’d be surprised if they cut the divi but you never know.

 

If I recall correctly, from a conference call a couple years ago, MGMT said that they would like to funnel more cash to promising areas, share buybacks, debt repayment etc which makes more sense than growing the dividend, but that it was a balancing act because many shareholders have been holding for years and came to expect the dividend. i think they split the baby by not cutting the dividend, but telling people not to expect an increase even if the company started making a lot more money.

 

I agree that predicting demand a few years out is tricky, but if they are buying the ships because they have contracts in place from a liner company, then it's a good thing because we've got a predictable increase in cash flow that makes it more valuable today. 

 

Full disclosure:  this is one of my top 5 positions, but I'm betting on the jockey more than the horse. 

[kab60]

You do not feel Atlas is a long term multibanger?  One of the main reasons for purchasing APR was to smooth out Seaspan earnings in down years.

 

Personally I think we are in the early days of a tight market so I’m not too worried. But the trick will be to sell when a decent chunk of good news is priced in.

It's a leasing business in a highly competitive market where customers struggle to earn anything close to a double digit return over a full cycle. I think it's an okay'ish business, though that APR transaction seemed sleazy (they have long term contracts in place, so they should be insulated from quick ups and downs without ARP - that argument could be used universally to diversify, but investors rightly don't appreciate that).

 

If Seaspan earns excess returns, liner companies will be inclined to order ships themselves and keep them on their balance sheet. No secret sauce in calling a large Korean Shipyard. So while it looks like a good trade at a fat discount to tangible book, when the market freaks out about short term rates, why should it trade much above book?

[Parsad]

You do not feel Atlas is a long term multibanger?  One of the main reasons for purchasing APR was to smooth out Seaspan earnings in down years.

 

Personally I think we are in the early days of a tight market so I’m not too worried. But the trick will be to sell when a decent chunk of good news is priced in.

It's a leasing business in a highly competitive market where customers struggle to earn anything close to a double digit return over a full cycle. I think it's an okay'ish business, though that APR transaction seemed sleazy (they have long term contracts in place, so they should be insulated from quick ups and downs without ARP - that argument could be used universally to diversify, but investors rightly don't appreciate that).

 

If Seaspan earns excess returns, liner companies will be inclined to order ships themselves and keep them on their balance sheet. No secret sauce in calling a large Korean Shipyard. So while it looks like a good trade at a fat discount to tangible book, when the market freaks out about short term rates, why should it trade much above book?

 

Actually, it's not the same for every company.  If you studied how Netjets and other fractional jet companies work, and what Sokol did to differentiate Netjets, it becomes easier to understand what he is doing with two capital intensive businesses that operate in scales of time.  That's why shipping companies go under...because they all think all they have to do is buy ships and lease them out.  That works perfectly fine when the economy is good and the market is doing well and shipping rates are rising.  That does not work at all when the economy turns sour and rates decline, because your debt load and interest costs remain the same...and you're stuck with new ships/leases coming on line that you no longer need.  Same with energy...capital intensive, but time has less influence...unless you are APR which does a significant amount of business in short-term energy solutions.  What Sokol brings to the table is the understanding of how to create flexible financing solutions in capital intensive businesses and how to maximize leasing capacity.  He increased Netjets booking efficiency from 85-86% to like 95-96%.  It's not as easy to emulate as people think.  Cheers!

[petec]

You do not feel Atlas is a long term multibanger?  One of the main reasons for purchasing APR was to smooth out Seaspan earnings in down years.

 

Personally I think we are in the early days of a tight market so I’m not too worried. But the trick will be to sell when a decent chunk of good news is priced in.

It's a leasing business in a highly competitive market where customers struggle to earn anything close to a double digit return over a full cycle. I think it's an okay'ish business, though that APR transaction seemed sleazy (they have long term contracts in place, so they should be insulated from quick ups and downs without ARP - that argument could be used universally to diversify, but investors rightly don't appreciate that).

 

If Seaspan earns excess returns, liner companies will be inclined to order ships themselves and keep them on their balance sheet. No secret sauce in calling a large Korean Shipyard. So while it looks like a good trade at a fat discount to tangible book, when the market freaks out about short term rates, why should it trade much above book?

 

Actually, it's not the same for every company.  If you studied how Netjets and other fractional jet companies work, and what Sokol did to differentiate Netjets, it becomes easier to understand what he is doing with two capital intensive businesses that operate in scales of time.  That's why shipping companies go under...because they all think all they have to do is buy ships and lease them out.  That works perfectly fine when the economy is good and the market is doing well and shipping rates are rising.  That does not work at all when the economy turns sour and rates decline, because your debt load and interest costs remain the same...and you're stuck with new ships/leases coming on line that you no longer need.  Same with energy...capital intensive, but time has less influence...unless you are APR which does a significant amount of business in short-term energy solutions.  What Sokol brings to the table is the understanding of how to create flexible financing solutions in capital intensive businesses and how to maximize leasing capacity.  He increased Netjets booking efficiency from 85-86% to like 95-96%.  It's not as easy to emulate as people think.  Cheers!

 

Do you have a good case study of NetJets or have you pieced this together from various sources?

[petec]

You do not feel Atlas is a long term multibanger?  One of the main reasons for purchasing APR was to smooth out Seaspan earnings in down years.

 

Personally I think we are in the early days of a tight market so I’m not too worried. But the trick will be to sell when a decent chunk of good news is priced in.

 

Multibanger sounds like something from a, um, gentleman's website ;)

 

I do think the intrinsic value might be a long term multibagger - not because APR smooths anything out (it's too small to do that) but because I think management will allocate their ample cash flows sensibly.

 

However, the stock is highly likely to reflect full IV (or more) at the top of the cycle and rather less than IV at the bottom. So, if we get to a point where I think prices incentivise significant capacity additions, but the stock seems priced for sustained high earnings, I will sell.

 

 

[rogermunibond]

Consolidation rationalizes pricing.  Munger talked about this at a DJCO meeting a few years back applying it to US rails and US airlines.

 

You could perhaps draw similar conclusions for global container shipping but there's more ease for new entrants.

[kab60]

Consolidation rationalizes pricing.  Munger talked about this at a DJCO meeting a few years back applying it to US rails and US airlines.

 

You could perhaps draw similar conclusions for global container shipping but there's more ease for new entrants.

The big factor in shipping is large, state backed Chinese liner companies. They have different stakeholders to appease. I wouldn't attribute the current high rates to more rational competition thinking this time is different, but if I did, I'd probably wanna go long the liners instead for the large operating leverage.

 

As for Sokol and Net Jets, I think people have a tendency to over/underrate management on a limited set of data points. It ofte gets really stupid when people extrapolate past performance to new sectors or even just other companies in the same sector. I don't doubt he's smart, but there's that thing with the reputation of the bad business staying intact, when even great management tries to tackle it. Hope it turns out well, I think of it as a decent trading sardine though.

[kab60]

Just FYI, Hapag-Lloyd basically said last week that they expected rates to normalize in Q2. Maersk comfirmed the same thing today and said there's no way rates stay elevated. No idea if they're right obviously, but I guess it's a decent bet. Rates have been sky high since consumers have bought a ton of crap from China and a lot of de-stocking had to be done post summer 2020, but as lockdowns ease a lot of that consumption will probably go towards other things. And perhaps some demand has just been pulled forward. Not sure people will order as many large TV sets post lockdowns. It might be a good trade, Sokol might be great, but I don't see how buying tons of floating steel with short-midterm contracts and large residual value risks - leasing it to companies struggling to earn their cost of capital - will ever be anything more than a somewhat crappy to mediocre business at best. So many of these have gotten into trouble - Ship Finance, Ocean Yield etc. etc. Maybe this time is different, maybe Sokol does some magic, but I wouldn't bet on this thing compounding a lot of value going forward. Trading sardine, not something I'd marry. Good luck.

[petec]

Thanks. What’s the source for this? And are you sure they’re talking about shipping rates not container rates? They’re ordering newbuilds which suggests some sense of optimism.

[kab60]

Thanks. What’s the source for this? And are you sure they’re talking about shipping rates not container rates? They’re ordering newbuilds which suggests some sense of optimism.

Danish Media (https://borsen.dk/nyheder/virksomheder/soren-skou-helt-sikkert-at-det-taarnhoje-fragtrate-niveau-ikke-vil-bestaa). They're talking about container rates which have skyrocketed and sent liner earnings through the roof. They also expect good earnings in 2021, but Maersk has a wide guidance range due to the high level of uncertainty, and market doesn't exactly like it. I don't think it matter much for Atlas, since they're obviously insulated with their contracts, I was just pushing back on the narrative that the industry might have changed. I don't see any indication of that, it just seems like temporary tailwinds due to de-stocking and people ordering a bunch of craps while they're stuck at home. No idea where rates end up, but as I mentioned earlier I think Chinese competitors make it difficult to envision a structural shift in the industry towards a better returns.

 

Snippet from article:

 

I sidste uge anslog topchefen i Hapag-Lloyd, Rolf Habben Jansen, at prisniveauet vil normalisere sig i løbet af andet kvartal, og den formodning bakker Søren Skou, adm. direktør i Mærsk, nu op om:

 

“Det er da et meget ædrueligt bud,” siger den 55-årige skibsreder på et pressemøde i forbindelse med selskabets årsregnskab.

 

Han fortsætter:

 

“Vi har en helt ekstraordinær situation, som er drevet af, at mange af vores kunder i især andet kvartal stoppede med at handle i Asien, fordi de frygtede for deres salg. Da forbruget igen begyndte at stige i august, manglede der varer på hylderne, og derfor foregår der lige nu en lageropbygning samtidig med, at der er meget stærk efterspørgsel fra forbrugerne.”

 

“Lageropbygningen stopper på et tidspunkt, når de er fyldt op, men hvornår ved jeg ikke. Efterspørgslen fra forbrugerne vil nok være høj i et stykke tid, så længe verden ikke er åben. Men det er helt sikkert, at det nuværende niveau for fragtraterne ikke kommer til at bestå.”