Company Specific or Industry News Fueling Global Ship Lease's (GSL) Monster Move?

Per our post last week on container shipping companies Seaspan (SSW) and Global Ship Lease (GSL), we still plan to share additional commentary when our schedule permits. Shares of the latter continue to power higher on significant volume, which is why we briefly chime in here with five points:

(1) At the risk of stating the apparent, Global Ship Lease is moving toward what we view as a more rational valuation range (we'll discuss numbers in our follow-on post).

(2) As the "Market" gains interest, other investors are also sharing views on shipping and Global Ship Lease -- worth a read from SeekingAlpha.com:

• Why We Own Global Ship Lease

  Cale Smith • Oct 31 • 3 Comments
• Costamare IPO Pricing Analysis
  J. Bruun • Oct 28 • 5 Comments

(3) We have no insight into what's behind the big rally. There remains NO news regarding potential equity financing for CMA CGM (GSL's counterparty), nor any other company related news such as potential new financing arrangements that would facilitate the delivery of two new ships this December. The Market is clearly suggesting something, but the move upward is seemingly mere anticipation that generally better sector sentiment might soon bring good things to pass for the company.

(4) What we DO know is that industry news remains mostly favorable -- various sector news from The Journal of Commerce this today:

Yang Ming Profit Surges in Third Quarter Yang Ming Marine, Taiwan's second largest container line, posted a record profit and revenue in the third quarter, which ended Sept. 30, on rising freight rates, stronger demand and effective cost-control measures.

Jacksonville Container Volume Gained 10 Percent The volume of containers handled by the Port of Jacksonville increased 10 percent to a record of 826,580 20-foot equivalent container units in fiscal 2010 ended Sept. 30, the Jacksonville Port Authority said Tuesday.

Boeing Forecasts 5.9 Percent Annual Air Cargo Growth
Aircraft manufacturer Boeing, showing strong confidence in air freight demand after the longest downturn in the industry's history, says world air cargo traffic will return to its 2007 peak by the end of this year and resume strong expansion over the next 20 years.

Atlas Air Net Profit Soars 130 Percent Stronger demand, improved yields and higher prices powered a 130 percent surge to $33.8 million in net profit for Atlas Air Worldwide Holdings in the third quarter.

USPS Hikes Rates 3.6 Percent The U.S. Postal Service announced a 3.6 percent overall price increase for all shipping services starting in January.

Expeditors Net Profit Soars 66 Percent Strong demand that led to a record operating margin pushed Expeditors International of Washington to a $96.1 million net profit in the third quarter, 66 percent better than the same quarter a year ago.

(5) However, as Seaspan pointed out last week in its 3Q10 earnings deck, the increasing supply of ships may press freight rates lower in 2011-12 assuming a flattish demand environment:


Despite a moderating industry view into 2011, our original thesis was that we'd see improvement in sector fundamentals and sentiment from extremely dire 2008-09 conditions, leading to a positive revaluation for both Seaspan and Global Ship Lease. We simply didn't know exactly how or when this might come to pass. We gained comfort in the stable, real estate-like business models of both companies, which are underpinned by long-term leases and generate healthy, consistent, and high margin cash flows.

As we've written in the past, sometimes the highly unpredictable Market [psychology] can turn on a dime. Of course, fuller valuations for these and other companies make finding bargains more challenging.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long SSW, GSL.
© 2009 Jeffrey Walkenhorst
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