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Belships – BUY NOK 19 (prev. BUY 18) – Not accounted for Lighthouse Navigation, ST for Ships will still be extremely strong

We could have expected the record-high numbers to be reported for the Belship’s dry cargo shipping segment in the company’s 3Q21 report last week, but the Lighthouse Navigation segment more than surprised. The lag in Belships’ business signals for a very strong short-term future regardless of the negative rate development over the last few weeks. LT outlook also remains promising supported by the extremely low orderbook. We find difficulties in forecasting Lighthouse Navigation’s very volatile segment and believe that we should focus on a more sustainable Shipping operations, which should show more than solid performance during the next year. Buy is reiterated under a tad higher NOK 19/sh Target Price as we refuse to believe the success story is over and see the solid upside.

Lighthouse Navigation should not stand in a way of Ship’s performance

Following the rate development, we knew that the drybulk shipping segment’s results would bring yet another record quarter for the company, but the results beat our expectations. Revenues from the segment came in at USD 50.3m (USD 45.0m our expectations, USD 32.6m 2Q21) and the EBITDA at USD 35.1m (USD 31.4m our expectations, USD 22.7m 2Q21). This should not be overshadowed by Lighthouse Navigation segment’s EBITDA of USD 23.3m. Let us just say that the guidance for 2H21 to reach around half of the results of what was achieved in 1H21 was an understatement. However, the company communicated, that it expects to make provisions for potential loss-making contracts if the reduction in forward freight assessments in 4Q continues towards the end of the year. Dividends of NOK 0.55/sh was declared, while we were expecting NOK 0.43/sh.

Highly profitable contract coverage ahead

Despite the falling rates over the recent weeks, the lag in Belship’s business means that when the spot markets fall, the outperformance will tend to be higher. The company communicated of a 77% of available ship days in 4Q to be booked at about USD 29,000 net per day (compared to USD 25,378 net per day during 3Q21). Around 42% of available ship days in the next four quarters are booked at about USD 25,500 net per day. Both these figures should be valued very positively, mostly meaning that the next year is deemed to be highly profitable even in the event of the rates not recovering to previous heights. The long-term future is bright as well – the orderbook of Supra/Ultramaxes is below 6% which is historically very low – we are heading towards the lowest rate of supply growth in 30 years. Furthermore, if the pandemic brings no more surprises, the economic activity should accelerate, whereas the minor bulks tend to correlate with the GDP.

Lighthouse Navigation aside, we are not finished

In addition to the commercial management, the LHN takes positions on vessels and cargoes and the significant drop in spot rates should lead to a markedly lower 4Q. Still, we find the segment very difficult to predict and yet, even when focusing solely on Ship segment, our positive stance towards the stock is reiterated under NOK 19/sh TP suggesting that the success story should continue.

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Source: Norne Research

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