A look at a shipping company and a uranium update
At the beginning of next month, Germany will be taking 3 of its nuclear power plants offline. This has been in the works for some time now. It will leave Germany with only 3 active nuclear power plants. These three are also the least efficient of Germany’s nuclear power plant arsenal. While Germany is dropping nuclear from its repertoire, the rest of the world is planning to expand use.
Asian use in particular is going to be booming. Japan currently has 33 reactors up and running with plans to add 11 more. India wants to triple their current figure to 72 plants. Plans to build are one thing, actually putting shovels in the ground and getting these plants built is another but so far, it looks like we are in the beginning innings of a boom in nuclear power plants. Asia is already in the construction phase of 35 and Europe has 15 in construction. More uranium demand is coming. I’m a firm believer in the uranium miners. I believe this rise in uranium demand will benefit all uranium miners but I’m particularly fond of Uranium Fuels (UUUU). By adding rare earth minerals to their arsenal, they have added a new dimension that the others lack. The best way to compare these companies is by analyzing the leverage that they are utilizing on their balance sheet and their stock’s performance. This I will leave to a future post.
One of the biggest stories of this year has been the shipping mayhem at sea. Prior to March 2020, shipping companies were struggling mightily. Many of the big players shutdown opportunities to expand their fleet. Many of the smaller guys closed up shop. Then the government shutdowns hit. This put the shipping company stocks into the basement. No one was spared but now the industry has turned the corner. Shipping rates are skyrocketing and these companies are beginning to make money. Big money. Now when a company has a turn-around story and ends up with a lot of cash on their balance sheet, they have three options.
Put the cash to work by expanding the business or paying down debt
Buying back stock
Paying a dividend
Some companies do a combination of tactics. Dividends were very popular in Ben Graham’s day (that would be Warren Buffet’s predecessor). Lately stock buybacks have been all the rage. Both give a return to the investor. In the case of a dividend, it is a direct cash payment that is taxable. In the case of a stock buyback, it translates to an increase in the stock price. Stock buybacks are particularly popular because many company executives get stock option bonuses. These payout big-time when the stock price rockets higher. This is an important factor when analyzing a company. If the executives get paid in stock options, they’ll prefer to buyback stock. If they are holding shares, they might prefer a dividend.
One shipping company that has recently become flush with cash has decided that a dividend was the route they wanted to go and they went big.
ZIM Integrated Shipping is paying nearly a 20% dividend. This sized dividend plus the shipping industry comeback story make me very excited at ZIM’s prospects. What makes ZIM difficult is that they are an Israel based company. As a foreign issuer, they do not post their financials on the SEC’s website. You have to actually go to their website to review the info. This is no hassle to smaller investors but sometimes the bigger guys don’t like to mess with it. They’ll look for a domestic play that achieves them the same exposure without the trouble of doing work. To me this is a plus. It means the big guys aren’t going to see this one coming.
ZIM’s third quarter highlights were particularly stunning. According to their President and CEO, Eli Glickman, “The exceptional results we generated in the third quarter, reflect our highest ever quarterly revenues, adjusted EBITDA, net profit and operating cash flow. Importantly, we have once again delivered industry-leading margins, outperforming the sector’s average.” They had also boasted nearly $2.5 billion in cash on their balance sheet. That is a huge improvement over the previous year’s of $350 million.
In addition, investors can trade options in ZIM. If you like selling puts and covered calls, ZIM provides this avenue to you.
Full disclosure; I own shares of ZIM and UUUU