Ship values can be hard to determine in today’s market conditions: VesselsValue new valuations service can be of service
Determining a ship’s future value can be an invaluable trait for any ship owner, as it can be the main factor between his success or failure. For example over the past 12 months, as per VesselsValue’s data, Aframax and Suezmax tankers are the winners of the current market’s upwards momentum, with an increase in value of approx. 22% over the last 12 months. By contrast, 15 year old Capesize’s have fallen almost 60%, while 15 y/o Panamax and Supramax are down 50% and 15 y/o Handy’s are down 40%. Modern vessels have fallen less in % terms but are still down by 15 -30% (dependant on type).
Hellenic Shipping News Worldwide interviewed Mr. Adrian Economakis, VV’s Strategy Director on the company latest offer in the market, a service on Discounted Cash Flow (DCF) valuations for the shipping industry, in essence a tool for looking into a ship’s earnings over its life cycle and thus determine its actual value. Mr. Economakis also discussed with us the latest market trends in terms of ship values and where demand is heading.
VesselsValue recently announced the launch of Discounted Cash Flow (DCF) valuations for the shipping industry. Can you let us know about this new service?
The VV DCF module offers instant and daily updated income based valuations for the circa 35,000 vessels we currently cover. The model takes account of a large number of inputs. These include; anticipated earnings (i.e. charter rates), operating expenses, survey costs, expected working days, commissions, inflation rates and representative discount rate (WACC). These inputs are estimated by VesselsValue.com through detailed and continually updated analysis and the resulting value is our best estimate of the long term value of the vessel. However, all these inputs can be overwritten by the user (our customers) in order to model different scenarios and also to provide customised DCF valuations.
The DCF valuations are vessel specific in terms that the expected earnings and costs are adjusted for the specifications of the vessel being valued. For example, top quality Japanese or Korean built vessels with eco engines are expected to earn more and cost less to run than their lower quality counterparts. This is shown in the newbuild and S/H markets through the higher prices these vessels command. The direction and magnitude of the effects of specifications on earnings and costs have been derived from extensive analysis of the charter market for vessels of the same type and age but of different specifications.
Please see example DCF valuation page below for the capeszie vessel the Bulk Ingenuity. The assumptions are in the top table and the annual cash flow calculations below
What types of ships are included in your calculations?
We cover the same vessel types as we do for market values. This includes Tankers, Bulkers, Containers, LNG and LPG.
Would you say it’s accurate enough for ship owners to be able to use it as a reliable tool?
Yes, it is a highly detailed, accurate and reliable tool. We have many ship owner clients currently subscribing to the DCF module. However, the term “accurate” can be somewhat misleading. This is because it is not possible to measure the accuracy of a DCF valuation as there is no real market to test it against.
The DCF value represents the estimated long term value of a vessel and this can be significantly different to the current market value.
For example, the VV DCF values for modern Capesize vessels are currently more than double the current market values. This is because market values are at all-time lows due to the very poor market conditions (i.e. at or near the bottom of the cycle) while the DCF value is derived from the expected earnings over the remaining life of the vessel (i.e. mid cycle average).
Therefore, the only assessment of accuracy that can be made is about the assumptions used in the model. This is easy for things like OPEX, survey costs and commissions as these can be assessed against real observations. It is almost impossible for expected charter rates as nobody knows what the future will be and especially as charter rates are so volatile and notoriously unpredictable.
As a final point, we recently generated 4 DCF valuation certificates for an owner client of ours in Asia. These were for Post Panamax bulkers and the DCF values where significantly higher than the current market values. These certificates show all the assumptions for total transparency. We were audited by one of the big 4 accountants and our methodology, data accuracy and ultimately the values passed the audit with flying colours.
Will you be adding more parameters on these valuations?
Yes, we are constantly improving and updating the model. The next “advanced” parameter to be added will be functionality to allow adding of different financing attached to the vessel.
So far in 2015, we’ve seen a marked increase in terms of demand for tankers. Can you inform us about the most sought-after types and how much they ‘ve appreciated in terms of value in the S&P Market?
In the last 12 months we have seen a very strong and sustained tanker chartering market. Crude tankers in particular have been very much in demand, while product tankers have also benefitted from the good market. The result has been a rise in tanker values, but the magnitude of the increase has been much less than most people would expect in such a good charter market.
This subdued rise in tanker values is likely the result of 3 effects. Firstly, there is still significant shipyard capacity so newbuilding prices have stayed low which has limited the rise in value of new modern vessels. Secondly, buyers and sellers have been unable to meet in term of price ideas. Sellers don’t want to sell at current values as they are enjoying the high earnings and buyers aren’t willing to pay the high prices demanded by the sellers as they don’t believe this market will last much longer (and are worried about potential declines in values in the future). Finally, the Greek economic and political crisis has put a lot of Greek owners on the sidelines as they have been waiting for a resolution. Greeks are still the top owners and buyers so when they are less active prices and values don’t move as much as would be expected.
In terms of best performing tanker types in terms of values, mid age Aframax and Suezmax are the winners with an increase in value of approx. 22% over the last 12 months. Values of modern vessels, VLCC’s and product tankers have risen but at a lower pace (between 5-10%)
The dry bulk market has endured its own share of woes during the first six months of 2015. How has this translated into dry bulk ships’ values?
The bulk market has been very weak over the past 12 months. As is normally the case, the larger sizes and older vessels have suffered the worst (and they will benefit the most when the market turns). 15 year old Capesize’s have fallen almost 60%, while 15 y/o Panamax and Supramax are down 50% and 15 y/o Handy’s are down 40%. Modern vessels have fallen less in % terms but are still down by 15 -30% (dependant on type)
In the newbuilding market, we’ve noted a slowdown this year. Have prices fallen and which ship types are the most attractive at the moment, discount-wise?
2015 has seen a slowdown in Offshore, LNG and Bulker Newbuilding orders, forcing the major Korean Yards to lower their price expectations. These orders have been replaced by Tanker owners who have seen a buoyant 1st half 2015. Interest has been in Larger Tankers driven by the very good chartering market and the hope it will last; prompt deliveries are strongly preferred.
Moving forward, how do you expect the rest of 2015 to fare, in terms of newbuilding and S&P activity? Which ships are bound to receive the bulk of the demand?
The second hand market values for bulkers are today firming slightly of the back of an improved spot market leading to a flurry of secondhand deals. In the tanker market prices continue to firm and we are seeing traditional buyers stepping out of the market as they now consider it to hot, to be replaced by more specialized buyers who often hold specific storage business.
On the newbuildings, and almost exclusively tankers, we expect there to be a flurry of new orders to avoid the new Nox tier iii regulations, then after this we expect the rest of 2015 to be very quiet. It will be interesting to see how the new regulations affect individuals yards abilities to take new orders.
Nikos Roussanoglou, Hellenic Shipping News Worldwide