Keith Smith presented his in-depth investment theses on Siem Industries (OTC: SEMUF), Ocean Yield (OSE: OCYO), Wilh. Wilhelmsen (OSE: WWIB) at Wide-Moat Investing Summit 2017.
Keith’s session focuses on shipping companies that generate good returns through the shipping cycle (compounders). He has observed three types of compounders: opportunistic, recurring revenue, and logistics providers. He shares an idea of each type, which he considers compelling at recent prices:
Siem Industries is a holding company with interests in the oil and gas services industry and renewables sector; ocean transportation of refrigerated cargoes and automobiles; and potash mining and finance, which includes loans and guarantees, credit advisory services and investments. Siem is run and majority-owned by Kristian Siem. Kristian is a master capital allocator who has compounded Siem’s book value by 23% per year for 29 years. The shares recently traded at a P/BV ratio of 46%, look-through P/E of 7.6x, and look-through EV/EBITDA of 4.4x. Reasons for the discount include lack of sell-side coverage, lack of trading liquidity, and depressed oil and gas services and shipping industries. Since the 1970s, Kristian has opportunistically bought and sold shipping assets, from oil and gas rigs to cruise ships. Kristian is 68 years old and still has the desire to buy cheap and sell dear. Future catalysts for Siem shares include improved oil and gas prices; better shipping conditions as sources of ship financing become less numerous; and sales of assets as the recovery unfolds. If the shares traded at book value, the stock would be a double, not including any earnings gains from a turn in the oil and gas services or shipping markets.
Ocean Yield is a ship finance company affiliated with the Aker Group. Originally focused on oil and gas vessels, Ocean Yield has diversified its fleet to include car carriers, chemical tankers, gas carriers, and container ships. All of Ocean Yield’s vessels have long-term leases (11.4 years on average) with mostly credit-worthy shipping companies. A majority of these companies are not affiliated with the Aker Group. Ocean Yield is run by the former CEO of the first publicly traded ship finance company, Ship Finance International. Since the IPO, Ocean Yield has generated a change in book value plus dividend return of 13% per year and has had quarterly ROEs ranging from 12-18%. The shares recently traded at a yield of 9.8%, P/E of 8.4x, and EV/EBITDA of 7.3x, despite the recent loss of an oil and gas lessee. Given the current pull back in financing of vessels from the KG system, new leases can be initiated at favorable terms for the lessor. Ocean Yield has initiated leases on these favorable terms over the past few years and plans to initiate more leases in the near future. If Ocean Yield traded at the same multiples as its nearest competitor or aircraft lessors, the stock would sell for 50% more and a holder would collect a ~10% dividend yield.
Wilh. Wilhelmsen is a holding company with interests in firms that provide shipping and logistics services for car and roll-on/roll-off (ro-ro) customers, marine products, ship agency service, marine safety, marine time logistics, and ship management. Wilh. Wilhelmsen is majority-owned by the Wilhelmsen family and is run by a 5th-generation owner-operator CEO. Over the past ten years, Wilh. Wilhelmsen has generated average ROE of 11.6% and BV-plus-dividend growth of 9% per year. The shares recently traded at a P/BV ratio of 60%, look-through P/E of 6.5x, and look-through EV/EBITDA of 4.5x. Reasons for the discount include a perception of a peak auto market and a depressed shipping industry. Wilh. Wilhelmsen is actually more of a vehicle logistics provider that uses shipping to transport vehicles as opposed to being a pure shipper. Future catalysts for the shares include stable auto demand, increased equipment demand, better shipping conditions as sources of ship financing become less numerous, and sales of assets as the recovery unfolds. If the shares traded at NAV with a holding company discount, the stock would be a double, not including an earnings gains from a turn in the shipping markets.
Keith Smith is the Portfolio Manager of the Bonhoeffer Fund, LP, a co-founder of Bonhoeffer Capital Management, LLC, a board member of Sitestar Corporation and a Managing Director of Empire Valuation Consultants. With over 20 years of business appraisal experience, Keith’s expertise in valuing firms and assets across industries that has been applied to identify mispriced securities. Over the past 15 years, he has implemented a global value based strategy that has generated market beating returns in his own portfolio. He holds a CFA charter and received his MBA from UCLA and a BS in Electrical Engineering from Union College. He lives in Rochester, NY and is on the board of a local professional and charitabe organization.
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