ISH - International Shipholding Corporation

[GrizzlyRock]

Hey guys - I had an interesting meeting with ISH's management and came away with a much better understanding of the biz. 

Fairly diverse shipper with Jones act ships, pure car and truck shippers, roll on roll off rail shipping, military supply movements, and dry bulk. Don't think its screamingly cheap but interesting to watch if the sector gets hit due to their relative stability (70% of biz is locked in with variable segments being dry bulk (super fun currently...), Rail Ferry (only player in space), and Supplemental (getting tagged by sequestration this summer))

 

Here are my notes for posterity:

- Spending $50 mm in capex over next 5 years for retrofits for the Jones Act ships purchased in Fall 2012

- Jones act ships have contract ends of (1) Tampa electric is end of 2014 (2) Mosaic for phosphate end of 2014 and (3) Mosaic for  fertilizer is 2017

- Suppliers are Maersk and Kirby and International Norwegian cars all in car carrier (Note: Is NOOC cheap?)

 

- Dry bulk - 7 ships 5 own 2 charter in charter out

- 30% variable earrings supplemental, rail ferry and dry bulk

- rates are at $8k per day

- ISH would stand to gaim $2.5mm per year for every 1,000 per day increase in the spot rate

 

- Rail ferry is a biz that only ISH is in.  JVs at terminals and specialized loading capacity increased in 2007

- Rail ferry is $4 mm gross profit per year

-  90% utilized southbound and 70 percent northbound

 

- Supplemental - military is $8 in gross profit

- 2007 and 2008 24 mm in gross profit

-  mostly west coast into Guam

- retrograde from gulf Middle East

- sequestration is 2$mm in revenue and net income

- maritime administration 60 ships (1 contract per ship)

- mostly roll on roll off carriers

- It costs $2.1 mm per year to maintain us flag

- Us car carriers 21,000 insurance, people, union wages and benefits

-  8,000 from Maritime administration

- International flag costs only 7,000 (non union labor)

- intl flag margin is 5,000 per day

- So ISH needs to need 26,000 on the US flagged vessels to make fair margins vis a vis International flagged vessels (really tough without the Maritime fees - they will reflag if need be)

- Typically 5 year contract with two potential extensions of 2 years each for a total of 9 years

- One vessel coming off in 14 and the rest are 17 and 19

- 2007 and 2008 didn't carry 1 car - did military hauls instead

- Car market coming back per

-Vessels operating under charter continuously

- Perhaps charter rates coming up in 2014?!?

 

- M&A / New build / buy strategy may be to add capacity in the car carriers (US demand picking up)

- Only segment that is problematic is dry bulk

- Jones act ships are 32 years old -

- Won't pursue things in the spot market

- Must hit return target of 9% to 10% for mgmt to move on something.

- Could be financed by debt, preferred stock, or sales leaseback, last option would be common stock dilution

 

- Working capital covenant is somewhat worrisome

[stahleyp]

Hey Kyle,

 

Thanks for the idea. Management owns a nice piece which is a plus. Have you ever read "The Shipping Man"?

[GrizzlyRock]

I have not.  Is that a recommendation?

[Hielko]

I have not.  Is that a recommendation?

Yes :)

[MYDemaray]

Also recommended: The Box.  Thanks for the write up Kyle.

[JEast]

40% of their revenue is generated from 13 ships/tugs with an average age of 32 years.  Plus four (4) of those ships appear to be off-hire so no wonder it is selling at half book.  One would have to assume capital expenditures will be coming very soon for replacements.  Side note: ships are usually considered for the scrap yard after around 30 years of service, on average.

[GrizzlyRock]

Yea the capex on the Jones Act ships they bought last fall is going to be massive over the next few years...

[stahleyp]

I haven't read it yet, but a lot of folks seem to like it. Granted it's fiction, but I think it gives a good overall view of the industry.

[usdtor05]

I would recommend giving it a read. You will laugh at the over the top portrayal of some of the characters but it is still interesting and might change the way you look at things.