The Valuation of Ship, Art and Science - Roger Bartlett

The Valuation of Ships Art and Science
By Roger Bartlett, Managing Director, Maritime Strategies International Asia Pte Ltd For Marine Moneys Annual Korean Ship Finance Forum Busan st 1 November 2012
6th
Maritime Strategies International Ltd.
Maritime Strategies International

High level, independent shipping market forecasts and business advisory services to the shipping and its allied industries Clients from all parts of the shipping industry and across the globe..
Valuations
Major ship owners and charterers and traders Shipping banks, funds and financial Institutions
Shipping Market Forecastsall sectors
MSI est. 1986
Business Advisory Services
Shipbuilders, Class, Ship managers, Public Sector, and others
London and Singapore
MSI values all types of ships (incl. offshore)
Outline
The Valuation of Ships
A. Elements of a ship valuation * 1.Newbuilding, 2. Scrap prices, 3. Second-hand prices and 4. Forward Valuations B. What impacts ship values? * Falling scrap prices, New technology and economic trauma
C. Where will prices go next?
D. Conclusions * Systematic approach pays dividends, risks & rewards, buy/build now?
MSI The valuation of ships
B. ELEMENTS OF A SHIP VALUATION

Maritime Strategies International Ltd. 5
What Determines Secondhand Vessel Prices?

Current Replacement Cost - Sets Upper Reference to S&P Market
(Yard Prices: Highly Unstable; Major Market Risk)
Expected Earnings - Sets Depreciation Rate

(TC Rate, Vessel Life Expectancy)
Sale Timing and Operational Specifics - Sets Exact Price

(e.g. Proximity to special survey, vessel condition )
Residual Scrap Values - Sets Floor to S&P Market

($/LDT:Limited Influence or Up-/Downside Risk)
Elements of a Ship Valuation
1. NEWBUILDING PRICES
New building price drivers

Yard costs
Shipbuilding Price Index ($/CGT)
Global Newbuilding Orderbook
FORWARD COVER
Global Ship building Capacity
Forward Cover and Price

$ CGT 3,500 3,000 2,500 2,000 1,500 1,000 500 0 0 1 2 3 Years Forward Cover
9
$ CGT Price (1980s) $ CGT Price (1990s) $ CGT Price (2000 to 2004) $ CGT Price (2005 to 2008) $ CGT Price (2009 to 2010)
3 to 4 Years
Forward Cover (FC) is a measure of the aggregate orderbook across all sectors compared with total available global shipyard capacity and is measured in years During the 1980s and 1990s FC remained in a 1 to 2 year bound During the mid 2000s FC reached 4 years
1 to 2 Years
New building prices move in tandem across sectors

Mn US$ 90 80 70 60 50 40 30 20 10 0
Newbuilding Contract Price
Aframax Tanker Panamax Bulker 1.1kTEU FCC 24kCuM LPG Carrier 2.5kLm RoRo
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
MSI Asia Pte Ltd
10
2010
Yard costs and prices diverge

Index (2003=100) 250%
Yard Cost Versus Price
200%
Av Yard Cost
Av Price 150%
100%
50%
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
MSI Asia Pte Ltd
11
2010
0%
2. SCRAP PRICES
12
Scrap Price
600 Mn GT Ship Scrapping Volumes (RH Axis) Scrap Price ($/LDT) Steel Price Index (1980 = 100) 30
25
500
400
20
Scrap price is a function of steel price, local steel demand and scrapping volumes Steel from scrapped ships makes up a small fraction of total scrap steel sales (approx. 10%), which is dominated by scrap auto sales
300
15
200
10
100
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
13
3. SECONDHAND PRICES
14
Second hand prices

All historical secondhand prices are converted into a net replacement value for the individual ship: NRV =
(2nd hand price scrap price in YoS) (Newbuilding price in YoS scrap price in YoS)
This (expressed as a %age) allows us to compare all prices over time independent of both new building and scrap prices
15
NRV Plotted Sales Since 1990

NRV
180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 0 5 10
Panamax Bulker
Actual Transaction Line of Best Fit
Age at Sale
16
15
20
25
30
Depreciation and Earnings Relationship

NRV
180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 0 5 10
Large Capesize Bulker
Intermediate Market Trough Market Peak Market Super Cycle
Age at Sale
17
15
20
25
30

NRV
140% 120% 100% 80% 60% 40% 20% 0% 0 5 10
Large Capesize Bulker
Intermediate Trough Peak Super Boom
Age at Sale
18
15
20
25

NRV
140% 120% 100% 80% 60% 40% 20% 0% 5 10
Handymax Bulker 1990 1999 2008 1993 2002 2011 1996 2005
Age at Sale
19
15
20
Price and Earnings Relationship

Panamax Bulker
140% 120% 100% 80% 60% 40% 20% 0% NRV 10 year NRV Net Earnings (RH Axis) 60 50 40 30 20 10 0 000 $/day 70
Correlation = 0.90
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
20
Secondhand Values
Secondhand prices can be expressed as Net Replacement Values
Removes the steel element and allows comparisons over time
Shape of depreciation curve is driven by earnings environment

The poorer the earnings environment the more concave the depreciation
Net Replacement Value can exceed 100% in very strong earnings environment
Forward valuations: the added dimension

Shipyard, specifications, design, proximity to survey, trade, previous owners, flag..
Scrap price outlook
New building price outlook
Earnings forecasts
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
Forward Valuations
Tank Bulk Cont
Assessment of residual risks and rewards banks, owners, insurers, investors
2010
2015
2020
2025
22
MSI Vessel Valuations
B. HOW DO ISSUES IMPACT ON SHIP VALUES?

Effect on values of falling scrap prices

Newbuild Price
80 70 60 50 40 30 20 10 0 0 5Year 10Year
24
Young Ships face min risk
Older ships values at greater Risk
Scrap Price
15Year
20Year
25Year
New technology reducing life expectancy

80 70 60 50 40 30 20 10 0 0 5Year 10Year
25
Newbuild Price
Values of younger ships face small risk
Old Ship values face maximum risk
Scrap Price
15Year
20Year
25Year
Charter markets at rock bottom

80 70 60 50 40 30 20 10 0 0 5Year 10Year
26
Newbuild Price
Young Ships Face Max Risk
Old Ships Face Min Risk
Scrap Price
15Year
20Year
25Year
MSI The Valuation of Ships
C. WHERE WILL VALUES GO NEXT?

Newbuilding Prices Outlook

Index (2003= 100) 250% 225% 200% 175% 150% 125% 100% 75% 50% Forward Cover (RH Axis) Av. Yard Cost Av. Yard Price Years 4.0
Yard costs pressure will help maintain newbuilding prices Yard costs to remain at record highs
3.5
3.0
2.5
2.0
FC to drop below 2 years
1.5
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
28
2015
1.0
Earnings Outlook
Index (2003 =100) 200% 180% 160% 140% 120% 100% 80% 60% 40% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20% Container Bulker
2007 = 317% 2008 = 327%
Tanker
Earnings forecast will trough over the next 18 months for the main sectors Bulkers will hit lows first shortly followed by tankers and then containerships
29
5 Yr Old Price Outlook

Mn US$ 80 70 60 50 40 30 20 10 0 Panamax Containership Panamax Bulker Aframax Tanker
Downward pressure NB Price & Earnings
Scrap price offers support for ageing tonnage

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
30
Q3 2012 Medium Term Outlook
Newbuilding Prices
Newbuilding prices declining over the next 12 months
Scrap Price
Scrap prices to support older ship values
Earnings
Supply / demand balances skewed towards supply side for main sectors Gradual and sustained recovery in earnings during H2 2013 for most sectors / sizes
More downside if capacity remains open / operational
$LDT price firm due to local scrap steel demand and global steel price
31
2004 blt VLCC price history and outlook

160 140 120 100 80 60 40 20 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Ordered 2012 approx Delivered 2004
$105M (resale)
$46M
2002 $66M
32
Conference VLCC value tracking

180 NB 0 140 5 120 10 15 20 Scrap 60 MM Korea VLCC 40 160
100
80
20
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
MSI Asia Pte Ltd
33
MM Korea VLCC (blt. 2004) value over time
34
Concluding thoughts
Systematic approach to valuations Risks / Rewards Buy / Build now ?

MSI Asia Pte Ltd
Critical Element in decision making Based on fundamentals and Independent Future valuations permit assessment of residual risks
Charter rates affects modern ship values most New technology leads to dual/multiple markets Changes in Scrap prices > impact older tonnage
New building prices bottom out 2013 Oversupply depressing markets affect modern tonnage values more.. Secondhand could provide good opportunities distressed assets hard to find
35
Maritime Strategies International Ltd

www.msiltd.com
High level, independent ship market forecasts, valuations and business advisory services for shipping and allied industries
London: 2 Baden Place London SE1 1YW Tel: +44 (0)207 940 0070 Fax: +44 (0)207 940 0071 Email: info@msiltd.com
Singapore 8, Shenton Way #12-01, AXA Tower Singapore 068811 Tel: +65 6427 4180 Email: roger.bartlett@msiltd.com

The Valuation of Ship, Art and Science - Roger Bartlett

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

The Valuation of Ship, Art and Science - Roger Bartlett

Caricato da

Copyright:

Formati disponibili

The Valuation of Ships Art and Science

Maritime Strategies International Ltd.

Maritime Strategies International

Shipping Market Forecastsall sectors

MSI est. 1986

Business Advisory Services

Shipbuilders, Class, Ship managers, Public Sector, and others

London and Singapore

Maritime Strategies International Ltd.

MSI values all types of ships (incl. offshore)

Maritime Strategies International Ltd.

C. Where will prices go next?

Maritime Strategies International Ltd.

MSI The valuation of ships

B. ELEMENTS OF A SHIP VALUATION

What Determines Secondhand Vessel Prices?

Expected Earnings - Sets Depreciation Rate

Sale Timing and Operational Specifics - Sets Exact Price

Residual Scrap Values - Sets Floor to S&P Market

Maritime Strategies International Ltd.

Elements of a Ship Valuation

Maritime Strategies International Ltd.

New building price drivers

Shipbuilding Price Index ($/CGT)

Global Newbuilding Orderbook

Global Ship building Capacity

Maritime Strategies International Ltd.

Forward Cover and Price

Maritime Strategies International Ltd.

New building prices move in tandem across sectors

Newbuilding Contract Price

MSI Asia Pte Ltd

Yard costs and prices diverge

Yard Cost Versus Price

MSI Asia Pte Ltd

Elements of a Ship Valuation

Maritime Strategies International Ltd.

Maritime Strategies International Ltd.

Elements of a Ship Valuation

Maritime Strategies International Ltd.

Second hand prices

Maritime Strategies International Ltd.

NRV Plotted Sales Since 1990

Actual Transaction Line of Best Fit

Maritime Strategies International Ltd.

Depreciation and Earnings Relationship

Large Capesize Bulker

Intermediate Market Trough Market Peak Market Super Cycle

Maritime Strategies International Ltd.

Depreciation and Earnings Relationship

Large Capesize Bulker

Intermediate Trough Peak Super Boom

Maritime Strategies International Ltd.

Depreciation and Earnings Relationship

Maritime Strategies International Ltd.

Price and Earnings Relationship

Maritime Strategies International Ltd.

Shape of depreciation curve is driven by earnings environment

Forward valuations: the added dimension

New building price outlook

Assessment of residual risks and rewards banks, owners, insurers, investors

Maritime Strategies International Ltd.

MSI Vessel Valuations

B. HOW DO ISSUES IMPACT ON SHIP VALUES?