The Science of Valuation
Values - What Next and Why?
Dr Adam Kent
Maritime Strategies International Ltd.
11th Annual Marine Money Asia Week
25th and 26th September 2012
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Contents
Agenda
What Determines Secondhand Values
Newbuilding Price Impact
Earnings Impact
Outlook
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What Determines Secondhand Vessel
Prices?
Current Replacement Cost - Sets Upper Reference to S&P Market
•
(Yard Prices: Highly Unstable; Major Market Risk)
•
Expected Earnings - Sets Depreciation Rate
(TC Rate, Vessel Life Expectancy)
•
Sale Timing and Operational Specifics - Sets Exact Price
(e.g. Proximity to special survey, vessel condition )
•
Residual Scrap Values - Sets Floor to S&P Market
($/LDT:Limited Influence or Up-/Downside Risk)
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Values - What next?
NEWBUILDING PRICE
IMPACT
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NB Price Impact on Secondhand Prices
MR Tanker
30%
QoQ Change
•
For modern
tonnage
secondhand
prices can move
in the opposite
direction to
earnings but in
tandem with
newbuilding
prices
•
With MR
tankers there
have been 10
quarters since
1995 when the 5
year old price
has moved in an
opposite
direction to the 1
Yr TC rate
NB Contract Price
5 Yr Old Price
20%
TC Rate
10%
0%
-10%
-20%
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Q2 2012
Q2 2011
Q2 2010
Q2 2009
Q2 2008
Q2 2007
Q2 2006
Q2 2005
Q2 2004
Q2 2003
Q2 2002
Q2 2001
Q2 2000
Q2 1999
Q2 1998
Q2 1997
Q2 1996
Q2 1995
-30%
NB Price Impact on Secondhand Prices
3.2kTEU Containership
Newbuilding Price
1 Yr TC Rate (RH Axis)
Mn US$
50
5 Year old Price
‘000 $/day
9.0
25
6.5
20
6.0
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Aug 12
7.0
Jul 12
30
Jun 12
7.5
May 12
35
Apr 12
8.0
Mar 12
40
Feb 12
8.5 •
Jan 12
45
Recent upturns in
containership
earnings have not
been sufficient to
offset the
downward
pressure from the
newbuilding price
Values - What next?
EARNINGS IMPACT
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Depreciation and Earnings Relationship
Large Capesize Bulker
NRV
180%
NRV =
160%
(2nd hand price – scrap price in YoS)
(newbuilding price in YoS – scrap price in YoS)
140%
120%
100%
80%
60%
40%
20%
0%
0
5
10
15
Age at Sale
20
25
YoS = Year of Sale
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Depreciation and Earnings Relationship
Large Capesize Bulker
NRV
180%
160%
Intermediate Market
Trough Market
Peak Market
Super Cycle
140%
120%
100%
80%
60%
40%
20%
0%
0
5
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15
Age at Sale
9
20
25
30
Price and Rate Relationship
Suezmax Tanker
90%
NRV
10 year NRV
‘000 $/day
Net Earnings (RH Axis)
80%
40
35
Correlation = 0.92
70%
30
60%
25
50%
20
40%
15
30%
10
20%
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2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
1992
0%
1991
5
1990
10%
Values - What next?
OUTLOOK
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Newbuilding Price Model Schematic
Newbuilding Supply Demand/Balance
Sectoral
Freight
Rates
Sectoral
Contracting
Newbuilding
Price
Global
Orderbook
Forward
Berth Cover
(years)
Regional Yard
Developments
Global Yard
Capacity
Average
Yard Price
Index
($ CGT)
Global Cost Components
(steel & machinery price,
exchange rates)
Weighted
Average of
Yard Costs
Regional Cost Components
(wage, inflation,
productivity)
Yard Building Costs
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Tankers
Bulkers
FCC
LPG
LNG
Reefer
PCC
RoRo
Cruise
MPP
Offshore
etc.
NB Prices Outlook
Index (2003=
100)
250%
225%
200%
Forward Cover (RH Axis)
Av. Yard Cost
Av. Yard Price
Years
Yard costs pressure will
help maintain
newbuilding prices
4.0
3.5
Yard costs to remain
at record highs
175%
150%
3.0
2.5
125%
2.0
100%
FC to drop below 2 years
75%
1.5
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2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
1.0
2000
50%
Earnings Calculation (Tanker Example)
Economic Assumptions
Trading Efficiencies
GDP Growth by Region
Industrial Production by Region
Exchange Rates/Interest Rates
Commodity Prices
Inflation
Vessel Specifications
Speed and Distances
Ballasting
Load and Discharge Time
Port Constraints
Pipelines, Canals & Sea-lanes
Supply Response
•
Using MSI’s
econometric
models TC rates
are derived from
supply demand
balances
•
An algorithm
models the shape
of the
depreciation
based on forecast
net earnings and a
NRV can then be
calculated for
every vessel type
by age
•
Annual average
forecasts out until
2025, quarterly
forecasts for 6
quarters
Contracting
Scrapping
Cancellation
Slippage
Conversions
Costs
Demand
Available Fleet
Crew
Insurance
Lubes & Stores
Repair & Maintenance
Administration
Oil Consumption & Production
Refinery Capacity & Throughput
Crude Oil Imports & Exports
Product Imports & Exports
Bilateral Seaborne Trade by Cargo
Vessel Demand by Type & Cargo
Deliveries
Casualties
Storage
Fleet by Age
Average Annual Supply
Market Balances
Available Supply by Size
Deadweight Employment
Employment Rate
Time Charter Rate
Newbuilding Prices
Secondhand Prices
Scrap Price
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Earnings Outlook
Index
(2003 =100)
200%
Container
Bulker
Tanker
2007 = 317%
2008 = 327%
180%
•
Earnings forecast
will trough over
the next 18
months for the
main sectors
•
Bulkers will hit
lows first shortly
followed by
tankers and then
containerships
160%
140%
120%
100%
80%
60%
40%
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2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
20%
5 Yr Old Price Outlook
Mn US$
Panamax Containership
Panamax Bulker
80
Aframax Tanker
Downward pressure
NB Price & Earnings
70
60
50
40
30
20
Scrap price offers
support for ageing
tonnage
10
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2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0
Specifics V’s Benchmark
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Summary
Newbuilding • Newbuilding prices will continue to decline over the next 12 months
• Downward risk if shipbuilding capacity remains open/operational
Prices
Scrap Price
Earnings
Timings &
Specifics
• Scrap price to continue to offer support to ageing vessels
• $LDT price supported by local scrap steel demand and global steel price
• Supply demand balances skewed towards supply side for main sectors
• Gradual but sustained recovery in earnings during H2 2013 for most sectors/sizes
• Vessel fuel consumption will continue to have a marked impact on vessel prices
• Proximity to survey (anticipated cost), during low earnings environment, will have a
detrimental impact on values on a case-by-case basis
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MSI - Credentials
Independent
• MSI is an independent consulting firm specialising in model-based forecasting of the shipping
markets
Experience
• MSI was established in 1986, it has 12 full time staff and is based in London with an office in
Singapore
Scientific
Approach
• MSI staff are all economists and scientists and offer a structured quantitative perspective to
shipping analysis combined with a wide range of industry experience
• MSI has a number of complementary partnerships and specialist associates
Partnerships
Coverage
Clients
• MSI works on a strictly fee-for-service basis, its practice is worldwide in scope and covers all
shipping sectors (including offshore) providing reports, models, valuations and consultancy
• MSI has a diverse client base and includes banks, owners, hedge funds, classification societies,
insurance providers, operators, shipbuilders, brokers, accountants, law firms and traders
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Maritime Strategies International Ltd
London:
2 Baden Place
London
SE1 1YW
Singapore
8, Shenton Way
#12-01, AXA Tower
Singapore 068811
Tel: +44 (0)207 940 0070
Fax: +44 (0)207 940 0071
Email: [email protected]
Tel: +65 6427 4180
Email: [email protected]