High inflation, interest rates hit ports-terminals firms' stock prices

On a year-to-date (YTD) basis ending 27 July this year, Drewry port equity index declined by 0.9 per cent vis-à-vis a valuation gain of 18.2 per cent for the S&P index.

Supply chain congestion has normalised, bringing the container dwell times down to pre-pandemic levels, lowering the storage-led income and thus contracting overall revenue, Drewry said in a financial insight piece on its website.

APM Terminals and Westports Holdings reported a double-digit decline in the 2023 first quarter (Q1) revenue per twenty-foot equivalent unit (TEU), mainly led by improvement in the supply chain.

Regional terminal operator Santos Brasil reported a dip of 11.8 per cent in container volumes in Q2 2023 compared to a drop of 14.3 per cent in Q1, whereas global terminal operators CMPorts and COSCO SHIPPING reported improvement in their container throughput in Q2 2023 to 5.3 per cent (versus Q1’s minus 4.6 per cent) and 3.2 per cent (versus Q1’s minus 4 per cent) respectively.

Margin of such companies contracted due to lower revenues and higher costs. As the decline in the storage income normalises, earnings before interest, taxes, depreciation and amortisation (EBITDA) margins should start to stabilise.

Ports and terminals operators opted out of debt markets in 2023 amid significantly higher interest rates. Most operators are dwelling on their cash balances to meet their capital expenditure needs.

Port and terminal sector’s enterprise value to EBITDA spiked this year, mainly led by a higher fall in the EBITDA vis-à-vis decline in equity prices.

At the current level, the industry trades in the undervalued zone with a discount of 7.8 per cent to its 10-year average, highlighting an opportunity for investors with long term horizon to invest in the sector, Drewry concluded.

Fibre2Fashion News Desk (DS)