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International Shipholding: Global Financial Crisis P/B Levels with 5% Dividend Yield
Posted by: Mark Lin (IP Logged)
Date: January 30, 2013 11:16AM
International Shipholding Corporation (ISH) and its subsidiaries are engaged in waterborne cargo transportation which includes Jones Act Trade, Pure Car/Truck Carrier Services, Roll On/Roll Off, Breakbulk/Bulk Carrier Services, Domestic Coastwide Services, Container Vessels, Multi-Purpose Vessels, and Rail Ferry Transportation. ISH is a water transportation specialist providing unique solutions for a diversified customer base with an emphasis on medium and long-term contracts and charters. Founded in 1947, ISH currently operates a diversified fleet of 46 U.S. and international flag vessels.
Valuation and Financial Analysis
ISH currently trades at a trailing twelve months P/E of 11.5 and a trailing twelve months EV/EBITDA of 7.2. Its current asset-based valuation at 0.55x P/B represents a 24% discount to its five year average P/B of 0.73. ISH achieved a trailing twelve months ROE of 4.8% and a five year average ROE of 12.6%.
ISH PE-ROE Comparison Chart
ISH Historical P/B and P/NTA Chart
ISH was profitable and operating cash flow positive for nine and ten consecutive years respectively. ISH's margins have fluctuated wildly from year to year, reflecting the cyclicality and volaility of the shipping industry. Management has grown the book value per share of ISH by a 5-year and 10-year CAGR of 2.2% and 6.3% respectively.
ISH Earnings-Cash Flow Chart
ISH Profit Margins Chart
ISH Historical Book Value Chart
Financial and Business Risks
ISH is highly geared with a gross debt-to-equity ratio of 84% and a net gearing of 72%. This does not include the effect of operating leases.
ISH Cash-Debt-Market Capitalization Chart
The average age of the vessels in ISH's fleet that it owns or leases is approximately 13 years, including the average age of its Pure Car/Truck Carrier fleet, which is approximately 11 years. Older vessels put ISH at a competitive disadvantage, especially in weak markets. Compliance with classification society standards and/or customer requirements or competition may require it to incur additional expenditures for alterations or the addition of new equipment.
In a weak market, declining values of ISH vessels could limit its ability to raise cash by refinancing vessels, and/or result in a breach of loan covenants or trigger events of default under relevant financing agreements that require maintenance of certain loan-to-value ratios. Older vessels may increase the risk of vessel impairment.
Business Quality and Capital Allocation
ISH's vessels fill niche market needs in ocean transportation. For example, a portion of ISH's shipping operations are conducted in the U.S. coastwise trade, where trade is restricted to vessels built in the U.S., owned and manned by U.S. citizens and registered under U.S. Flag under the Jones Act. ISH benefits from favorable industry dynamics here, as limited newbuildings are expected in the near-term due to high building costs and the absence of a mandatory regulatory vessel retirement age. Another example is CG Railway, ISH's subsidiary, the only company operating Rail Ferry vessels between U.S. and international markets. CG Railway has captured 10% market share of eastern U.S. originated or terminated freight in in its 12 years of operation.
ISH has a diversified customer base with low counterparty risk and has predictable cash flows from medium to long-term charters. The average length of customer relationships for ISH is 28 years, with most of its customers being either government departments or MNCs with investment grade credit ratings. Also, no single category of cargoes carried contributes more than 20% of ISH's total cargoes carried. ISH generates strong consistent fixed revenue, with 72% of fleet on medium to long-term charters. Approximately 63% and 62% of its revenues were generated from fixed contracts in 2011 and 2010, respectively.
After a seven-year hiatus, ISH reinitiated dividends at the end of 2008 and currently sports a dividend yield of 5%. Dividends are paid quarterly. ISH has paid dividends for 17 consecutive quarters and the cash flow from medium to long-term charters supports the dividends.
ISH Dividend Yield-DPS Chart
The author does not have a position in any of the stocks mentioned.