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Eric Schleien discusses value investing, rational investment analysis, and vital mental models.
Episodes
Saturday Mar 21, 2020
Saturday Mar 21, 2020
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.
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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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