#85: Coronavirus Investing Series, Part 4 | Braxton Gann | Shipping Companies

This is Part 4 of a special Coronavirus Investing Series. If
you have not listened to Part 1, please click here to
get the overall context/market overview during this unprecedented
time.


You can also listen to:


Part 2

Part 3



 
Overview

After a decade of bankruptcies, shipping investors are fed up.
The shipping ETF was shuttered a month ago, and the carnage
prompted Morgan Stanley and JP Morgan to drop coverage of the
entire sector. Investors fear that Covid-19 will crush oil
demand, and plummeting oil prices will result in tanker demand
evaporating - potentially resulting in bankruptcies. However,
tanker companies have used windfall profits to pay down debt, and
some are now on solid footing.


 
Halts In Air Travel

As lockdowns spread and air travel grinds to a halt, oil
consumption is collapsing, but Braxton says that's good for
tankers because what oil isn't getting burned is going into
storage on tankers, which were already in short supply.


 
Scorpio Tankers

Braxton discusses Scorpio Tankers, which trades at 35 cents on
the dollar of liquidation value. Scorpio owns the youngest
product tanker fleet of any public company. The product tankers
built during the last boom are starting to turn 15 years and
older, either trading in a second-tier market or moving into
dirty trades. At the same time, new environmental regulations
significantly boost the demand for product tankers to carry MGO
and other compliant fuels.


 
Other Tankers

Braxton mentions several other tanker companies he owns,
including Euronav, a prominent owner of crude tankers. Despite
the strongest balance sheet in the industry and a policy of
paying out 80% of net income as dividends, Euronav trades at
two-thirds of liquidation value.


 
IMO 2030 & The Shipbuilding Industry

In the show, Braxton explains why he finds the shipbuilding
industry unattractive, and how IMO 2030 may put a damper on new
ordering.


 
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