ZIM Integrated Shipping: $10.81 Dividend Payout By Q4 2022

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Banphote Kamolsanei

Investment Thesis – Exemplary dividends despite drastic correction

ZIM Integrated Shipping Services GmbH (NYSE:ZIM) drastically updated its dividend policy in FQ2’22, as you can read here. In short, the first three quarters of dividends are paid be capped at ~30% of the company’s quarterly net income. Here’s the rubbish — the compound annual dividend payout can reflect as much as 50% of annual net income, effectively triggering an inflated fourth-quarter payout.

We ran a detailed calculation based on these changes and came to an important conclusion. While prepayments will obviously be lower than the previously unsustainable $17 Q4 21 dividend payout, these revised numbers still reflect a more than impressive dividend yield. Here we go:

ZIM Forecast dividend payout

ZIM Forecast dividend payout

Author, S&P Capital IQ

With $2.85 paid in FQ1’22 and $4.75 in FQ2’22, we expect conservative quarterly payouts of $2.47 and 43.5% returns for FQ3’22 and FQ4’22, based on the lower estimate of 30% of projected net income is $5.03 billion for FY2022. However, if we refer to the previous 50% payout in FQ4’21 and the updated guidance going forward, ZIM investors could potentially up to see $20.88 paid out for the full year. That would trigger a very handsome $10.81 in dividend payouts by FQ4’22. Impressive given its 72.5% dividend yield at the time.

In the meantime, for the projected net income of $1.61 billion for fiscal 2023, we will of course expect a much lower dividend payout of $1.01 for the first three quarters with up to $3.69 by April 4 .Quarter 23 see. This then points to an excellent dividend yield of 23.3%. For fiscal 2024, we could see $0.45 quarterly, with up to $1.63 for the fourth quarter of 2024, which would then trigger a decent 10.34% return.

While ZIM’s falling dividend yields may seem discouraging, we must also emphasize that no company would be able to sustain these elevated payouts once freight rates drop. Additionally, even the conservative dividend yields of 6.21% through fiscal 2024 (based on a 30% payout) are comparatively better than its peers at a median of 3.3% to date. This therefore means the stocks will have massive returns over the next few years. Investors, don’t miss this goldmine in times of economic uncertainty like this.

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Note: These calculations are based on ZIM’s 120.44 million diluted shares outstanding in the second quarter of 2022, the share price of $28.80 at the time of this writing and consensus estimates of its projected net earnings through fiscal 2024. As such, these projected numbers may vary by the fluctuations in freight rates, actual revenue, number of shares and different requests in company policies in the future may differ from actual results.

Despite macroeconomic headwinds, ZIM is still on the road to success

ZIM Sales, Net Income, Net Income Margin and Gross Margin

S&P Capital IQ

In Q2 2022, ZIM reported revenue of $3.42 billion and gross margin of 63.2%, an excellent year-over-year increase of 43.69% or 4.7 percentage points. This has directly contributed to the growth of its profitability, with net income of $1.33 billion and a net income margin of 38.9% in the most recent quarter. It shows a huge year-on-year increase of 51.13% or 1.7 percentage points.

ZIM-carried volume/charter rates

ZIM-carried volume/charter rates

S&P Capital IQ

These exemplary increases were primarily attributed to previous record high freight rates, with ZIM reporting $3.59K/TEU through FQ2’22. This represented a whopping 53.6% YoY or 335.76% increase from Q2 2020 levels. As the company confirms another record figure for H2’22 contract rates, double the 2021 rate of 2 $,78k, we expect more exemplary earnings over the next two quarters, if not by H1’23.

ZIM Cash/Equivalents, FCF and FCF Margins

S&P Capital IQ

The increased interest rates have also directly improved ZIM’s free cash flow (FCF) generation to date, with $1.62 billion and a FCF margin of 47.5% reported in FQ2’22. It showed a monumental year-over-year increase of 92.85% or 11.9 percentage points. It’s no wonder the company increased its dividend payouts to ~30% of net quarterly income last quarter, compared to 20% previously.

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At the moment, ZIM appears well positioned for future growth and expansion as well, with excellent cash and cash equivalents of $946.8 million on its balance sheet. Add to this management’s adept deleveraging from $519.47 million in Q4 2020 to $164.8 million in Q2 2022 while simultaneously massively growing PPE net worth from $1.53 billion to 5, $76 billion. Stellar indeed.

Mr. Market can potentially improve ZIM’s FY2023 numbers by 10%

ZIM Projected Sales and Net Income

S&P Capital IQ

Over the next three years, ZIM is expected to report drastic revenue and net income normalization as freight rates are expected to fall from Q123. Nonetheless, it’s important to note that these numbers still make an excellent adj. Sales CAGR of 19.06% and Net Income CAGR of 108.78% between FY2019 and FY2024 respectively. Excellent indeed given the massive improvement in its Net Income Margin from -0.6% in FY2019 to 43.3% in FY2019 FY2021 and finally at a comfortable 9.14% in FY2024 compared to other giants like AP Møller – Mærsk A/S (OTCPK:AMKBY) at 6.3% and Evergreen Marine Corporation (Taiwan) Ltd at 17.1% up for the 2024 financial year.

Given China’s insistence on the Zero Covid policy, congested ports worldwide and continued increased demand for inbound shipments, there is a good chance that these elevated freight rates will persist into FQ1’23 or even H1’23. That would point to an aggressive 20% upside potential from current levels, although conservatively expecting closer to 10% to $10.15 billion in revenue in fiscal 2023.

Meanwhile, the consensus estimates that ZIM will report fiscal 2022 revenues of $13.21 billion and net income of $5.03 billion, an impressive increase of 23.22% and 8.4%, respectively, despite the tougher year-to-year comparison % compared to the previous year. We’ll see, although current trends appear cautiously optimistic.

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As mentioned above, we also expect excellent dividend payouts due to stable charter rates and volume growth of 3% through Q4 22. This could push ZIM’s stock valuations higher despite the deteriorating macroeconomic environment and the Fed’s aggressive efforts to raise interest rates through 2023.

In the meantime, we encourage you to read our previous article on ZIM, which would help you better understand its position and market opportunities.

  • ZIM Integrated Shipping: Open up new growth and new areas – but don’t add them

So is ZIM stock a buy?Sell ​​or hold?

ZIM 2Y EV/Sales and P/E ratings

ZIM 2Y EV/Sales and P/E ratings

S&P Capital IQ

ZIM is currently trading at 0.42x EV/NTM Sales and 1.05x NTM P/E, down from its 5-year median of 0.68x and 2.11x, respectively. The stock is also trading at $28.80, down -68.43% from its 52-week high of $91.23 and approaching its 52-week low of $28.33. Nonetheless, given the price target of $55.00 and a 90.97% upside move from current prices, consensus estimates remain bullish on ZIM’s prospects.

ZIM 2Y stock price

ZIM 2Y stock price

S&P Capital IQ

We think the current levels offer investors a very attractive risk/reward trade-off given the potentially generous dividend payout of $10.81 through FQ4’22. With the Fed set to hike rates by 75 basis points on Sept. 21 (otherwise a speculative 18% chance of a 100 basis point hike), we expect the overall stock market to continue falling over the next few days. The S&P 500 Index was already down -19.61% in the first nine months of 2022, signaling a time of maximum pain for highly opportunistic investors.

As a result, we encourage those with an upper risk and volatility tolerance to gain at current levels on the upcoming massive returns. Otherwise, bottom-fishing investors could potentially wait until the mid-$20s for a staggering 83.52% dividend yield.

Aye, aye, load the boat!

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