ZIM’s Q3 Rally Fades Fast As Declining Freight Pricing Worries The Street

Shares of Israeli headquartered firm ZIM Integrated Shipping (US:ZIM) have whipsawed since the release of third quarter results on Wednesday morning. The stock initially shot up 11.4% on the first read of results reaching $29.38 before shares sharply reversed and closed with a mere 2% gain.

As investors and institutions digested the numbers further, the stock came off -5% in trading on Thursday, continuing a downward trend from the all-time high reached back in March.

Despite the weakening share price, the stock experienced some bullish options trades that were highlighted in a report on by Fintel journalist Bret Kenwell yesterday.

The company experienced relatively flat revenues over the year with 3% growth to $3.23 billion, with the figure matching consensus forecasts.

The groups underlying profits measured by adjusted EBITDA decreased -7% over the year to $1.93 billion and slightly beat analyst estimates.

Free cash flow also marginally declined from $1.72 billion in 2021 to $1.62 billion this year.

At the bottom line, net income declined by -20% to $1.17 billion from $1.46 billion at the height of the pandemic in 2021. This equated to earnings per share of $9.66 and beat analyst forecasts of $9.36 per share.

A chart from Fintel’s financial metrics and ratios page for ZIM shows the strong revenue and profit growth experienced during the pandemic.

Carried volumes showed a -5% decline to 842 thousand TEU’s and was partially offset by a 4% increase in average freight rates per TEU.

Management declared a $2.95 dividend for the third quarter, paying out excess profits to investors.

With market dynamics changing as the pandemic recedes, management downgraded full year adjusted EBITDA guidance to $7.4 to $7.7 billion from $7.8 to $8.2 billion and also adjusted EBIT guidance to $6.0 to $6.3 billion from $6.3 to $6.7 billion prior.

ZIM’s president and CEO told investors “Driven by macroeconomic and geopolitical uncertainties, the near-term outlook for container shipping has shifted and the normalization in freight rates has begun”

Analyst Omar Nokta from Jefferies investment bank kept his ‘hold’ rating firm and new $27 target price which was reduced down from $55 last month. The significantly reduced target price came when declining prices began to intensify in late August.

Nokta did note to investors that ZIM’s realised freight rates were holding up much more firmly than spot average prices were suggesting. On the plus side, the firm believes volume pressures should improve as port congestion unwinds.

On average, the street remains cautious on the outlook for ZIM with a consensus ‘hold’ recommendation and a $38 average target price.

A chart from the Shanghai Shipping Index shows the declining rate of freight prices over the course of 2022.

Fintel’s fund sentiment score of 33.60 is bearish on ZIN, based on lower levels of institutional buying activity in the stock relative to other companies. ZIM ranks in the top quartile of stocks when screened against 35,560 other companies.

ZIM has a total of 433 institutions on the register that collectively own 46.69 million shares of the float. Some of the largest institutions include: Greenvale Capital LLP, Arrowstreet Capital, Renaissance Technologies Llc, Acadian Asset Management Llc, Altshuler Shaham Ltd, Menora Mivtachim Holdings Ltd., Harel Insurance Investments & Financial Services Ltd, and Migdal Insurance & Financial Holdings Ltd..

Now the key question is, should investors be concerned about the profitability of other shipping stocks in the market that are facing the same headwinds?

These industry challenges could impact other stocks within the sector. Some of these companies have been included below with their year to date return over 2022:

  • A.P. Moller Maersk (US:AMKBY) -43.0%
  • Navios Maritime Partners (US:NMM) -1.5%
  • Matson (US:MATX) -27.9%
  • Star Bulk Carriers (US:SBLK) -15.8%
  • Genco Shipping & Trading (US:GNK) -4.0%
  • Eagle Bulk Shipping (US:EGLE) +13.8%
  • Diana Shipping (US:DSZ) +24.7%
  • Euroseas (US:ESEA) -21.8%

This article originally appeared on Fintel

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