ATCO - Atlas Corp

[Castanza]

The key to these last 2 charters is their running low sulfur bunker fuel

 

 

https://www.argusmedia.com/en/oil-products/argus-marine-fuels-forward-curves in my opinion.

 

The IMO lowered the sulfur content maximum last May I believe. Alternatively ships can continue to use heavy fuel with the addition of scrubbers. I'm not sure if the IMO has set a hard date on no longer allowing this work around. If I had to guess, as new ships come online they will be built for the new fuel coming down the pipelines.

[petec]

I'm not sure this makes a difference for Atlas. They pass through the cost of fuel. If liners request it and are prepared to pay (either capital, or an additional lease fee) Seaspan will add scrubbers. But either way the cost sits with the liner.

[drzola]

From the world  am involved in and do my  research assignment on  marine wildlife seabirds  here with ECCC ( our measely little 200 mile limit ) it will depend what locations on earths oceans you deploy your ships in it appears.

Note; it seems  best to stick a ship on a constant route apparently fuel stability suppliers wise.

 

https://www.nationalobserver.com/2020/01/04/news/dirty-cheap-marine-fuel-ban-will-affect-canadas-arctic

 

P.S. if you happen to empty your ballast's in our waters you best not port here ever again as The Eye in the sky has recorded the event.

[bizaro86]

I'm not sure this makes a difference for Atlas. They pass through the cost of fuel. If liners request it and are prepared to pay (either capital, or an additional lease fee) Seaspan will add scrubbers. But either way the cost sits with the liner.

 

I suspect it makes quite a difference when a new charter is negotiated though. The liners won't just disregard that factor of their economics when negotiating a new charter. All else equal, they'd expect to pay less for a charter of a ship by the expected excess fuel cost.

[petec]

I'm not sure this makes a difference for Atlas. They pass through the cost of fuel. If liners request it and are prepared to pay (either capital, or an additional lease fee) Seaspan will add scrubbers. But either way the cost sits with the liner.

 

I suspect it makes quite a difference when a new charter is negotiated though. The liners won't just disregard that factor of their economics when negotiating a new charter. All else equal, they'd expect to pay less for a charter of a ship by the expected excess fuel cost.

 

Yes, but equally Atlas would pay less to buy the ship.

[bizaro86]

I'm not sure this makes a difference for Atlas. They pass through the cost of fuel. If liners request it and are prepared to pay (either capital, or an additional lease fee) Seaspan will add scrubbers. But either way the cost sits with the liner.

 

I suspect it makes quite a difference when a new charter is negotiated though. The liners won't just disregard that factor of their economics when negotiating a new charter. All else equal, they'd expect to pay less for a charter of a ship by the expected excess fuel cost.

 

Yes, but equally Atlas would pay less to buy the ship.

 

Not if they already own them (eg renewals).

[petec]

In the last 4 months, Atlas have done deals that will add 30% to their 3q20 fleet size (319/1073 TEU). This effectively deploys much of their 2021/2 free cash flow.

 

All these deals have been done on long term charter during a huge uptick in charter rates. OK, long term rates won't have moved as much as short term ones, but the ROICs should still be decent.

 

In addition I suspect they are working to add duration to as many of their existing ships as possible. In the smaller/shorter portion of their fleet this will be relatively easy and could generate a several-hundred-million-dollar 2-3 year windfall as discussed above. It will be interesting to see if they are also able to add duration to some of their mid-length contracts.

 

All this has been done without issuing a single share so far.

 

Overall the earnings power of this company has risen significantly in the last 6 months, on both short and long term time horizons.

 

[petec]

I'm not sure this makes a difference for Atlas. They pass through the cost of fuel. If liners request it and are prepared to pay (either capital, or an additional lease fee) Seaspan will add scrubbers. But either way the cost sits with the liner.

 

I suspect it makes quite a difference when a new charter is negotiated though. The liners won't just disregard that factor of their economics when negotiating a new charter. All else equal, they'd expect to pay less for a charter of a ship by the expected excess fuel cost.

 

Yes, but equally Atlas would pay less to buy the ship.

 

Not if they already own them (eg renewals).

 

No - sorry - I thought we were discussing the acquisition.

 

I am sure you are right, but I am not sure how big the impact is:

1) demand for all vessels is sky-high right now.

2) a relatively small proportion of the global fleet has the latest tech. These vessels will command a premium, but I don't think values are collapsing for the rest.

3) liners can call Atlas whenever they want and say: retrofit a scrubber for me, and add the cost to the lease.

 

This was all discussed in some detail on quarterly calls a couple of years back.

[RichardGibbons]

In the last 4 months, Atlas have done deals that will add 30% to their 3q20 fleet size (319/1073 TEU). This effectively deploys much of their 2021/2 free cash flow.

 

All these deals have been done on long term charter during a huge uptick in charter rates. OK, long term rates won't have moved as much as short term ones, but the ROICs should still be decent.

 

This rapid growth does make me wonder if we should basically assume that that industry is basically doomed to hit super-low charter rates sooner rather than later.  Atlas does have the long term charters  which helps reduce risk. But, if one of the rational, big players expands their capacity by 30% in two quarters, it's hard to imagine that other players in the industry won't be similarly aggressive, leading to oversupply in the medium term.

[petec]

That is, of course, the risk. However, this bull market has been a long time coming. It took a decade to work off the overcapacity from 2008. I think it is quite rational of Atlas to grow fast on long term contracts in the early stages of this bull, and leave others to the speculative "opportunities" that will be left in the latter stages.

 

I'd worry more about demand than supply, at this stage.

[bluedevil]

Yes -- this is a cyclical industry, so i do expect the industry to go overbroad.

 

But this is a hard market - so this is when we want to see Seaspan expand aggressively.  When things get soft, they will retrench and clip their coupon payments from their charters until it gets hard again.

 

That is why imho opinion the key to an investment in Seaspan is someone like Sokol that knows how to take advantage of the cycle.

[kab60]

High rates are bad for Chinese exports, do you think they'll allow high rates for long?

 

From what I hear one of the reasons that orderbooks are low might be that liner companies are not sure what fuel to back.

 

They're looking into green ammonia, methanol and even LNG to become net-zero eventually. All of it can work, but they all have big drawbacks as well (LNG tanks are crazy expensive, I believe the other two has less energy density than bunker fuel, so they'd have to re-fuel from Asia > Europe etc.). Maersk will have a ship saying on biomethanol in 2023. Not sure of the implications for Atco, if any.

[Viking]

In the last 4 months, Atlas have done deals that will add 30% to their 3q20 fleet size (319/1073 TEU). This effectively deploys much of their 2021/2 free cash flow.

 

All these deals have been done on long term charter during a huge uptick in charter rates. OK, long term rates won't have moved as much as short term ones, but the ROICs should still be decent.

 

This rapid growth does make me wonder if we should basically assume that that industry is basically doomed to hit super-low charter rates sooner rather than later.  Atlas does have the long term charters  which helps reduce risk. But, if one of the rational, big players expands their capacity by 30% in two quarters, it's hard to imagine that other players in the industry won't be similarly aggressive, leading to oversupply in the medium term.

 

Limiting factors moving forward for supply of new ships may be ship building capacity (especially the larger +8,000TEU vessels) and input costs (should steel prices continue to stay high). So there might be first mover advantages in the near term.

 

It is pretty crazy how fast Atlas has pivoted from buying used to drive growth to now aggressively buying new. WOW.

[kab60]

If you think rates will stay high, you might wanna check out Yangzijiang Shipbuilding in Singapore and their order book. Just a single data point. Came across it on Twitter. Might actually be a decent way to play a boom in new buildings, if one thinks that will happen, but I'm not much into that game.

[ourkid8]

Another day, another 8 newbuilds (plus an option for an additional 4) - Four 12,000 TEU and Four 15,000 TEU Containerships backed by Long-Term Charters. 

 

https://finance.yahoo.com/news/statement-minister-veterans-affairs-minister-140000272.html 

[petec]

Holy sh1t!

[WneverLOSE]

[glow=red,2,300]WOW ![/glow]

 

When opportunity knocks they step up to the plate !

 

40%+ growth in 6 months, [glow=green,2,300]Go Seaspan Go ![/glow]

[petec]

Is anyone aware of any other lessor (or liner for that matter) that has acted this fast and grown this much?

 

I ask because if not, then either Seaspan are seeing something others aren’t seeing, or they have genuinely built a competitive advantage vs other capital providers and are getting the pick of the opportunities.

[petec]

[glow=red,2,300]WOW ![/glow]

 

When opportunity knocks they step up to the plate !

 

40%+ growth in 6 months, [glow=green,2,300]Go Seaspan Go ![/glow]

 

37% if we are being pedantic: 397/1073.

[petec]

It’s amazing looking at consensus. For the next 3 years (2021/22/23) eps sticks in a range of $1.50-1.60. But within each average the range is between $0.70 and $3.

 

 

[WneverLOSE]

[glow=red,2,300]WOW ![/glow]

 

When opportunity knocks they step up to the plate !

 

40%+ growth in 6 months, [glow=green,2,300]Go Seaspan Go ![/glow]

 

37% if we are being pedantic: 397/1073.

 

The month only began  ;D so 37% in 5 months (and 4 days) hopefully we will be comfortable above 40% by the end of the month.

[petec]

[glow=red,2,300]WOW ![/glow]

 

When opportunity knocks they step up to the plate !

 

40%+ growth in 6 months, [glow=green,2,300]Go Seaspan Go ![/glow]

 

37% if we are being pedantic: 397/1073.

 

The month only began  ;D so 37% in 5 months (and 4 days) hopefully we will be comfortable above 40% by the end of the month.

 

Ha ha fair enough.

 

Really you should annualise the growth rate. And probably extrapolate it for a few years. To the moon!

[ourkid8]

At the pace Sokal/Bing are allocating capital towards acquiring ships, how are we going to fund them?  There is a down payment along with a payment structure which need to be made before you receive delivery. There is a significant investment before we reap the benefits down the line.   

[petec]

They're doing close to $700m of cash flow per year before you factor in rolling short term contracts into a hard market, which could add $200m for a couple of years. I think they have over $2bn of cash flow to deploy from now to the end of 2023. Assuming 60% debt financing that could fund $5bn worth of ships. I think they have done about half of that so far.

 

I think they have got a bit of leeway.

[ourkid8]

As I mentioned earlier, its hard for me to wrap my mind around this.  You are essentially saying we have the capacity to double our newbuild order book.  This is just insane. 

 

They're doing close to $700m of cash flow per year before you factor in rolling short term contracts into a hard market, which could add $200m for a couple of years. I think they have over $2bn of cash flow to deploy from now to the end of 2023. Assuming 60% debt financing that could fund $5bn worth of ships. I think they have done about half of that so far.

 

I think they have got a bit of leeway.