GE Shipping Vs Teekay Shipping - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

GE Shipping Vs Teekay Shipping

Jun 17, 2004

Unlike other sectors, shipping is a global industry i.e. freight rates, demand for tonnage and profitability are closely linked to the progress in global trade. In this article, we will discuss about the contemporary global shipping industry and see where two shipping majors, Great Eastern Shipping (or GE Shipping) and Teekay Shipping, stand among the whole scheme of things. As a matter of fact, while the former is the largest private sector shipping company in India, the latter shares its place among the largest in the world in the tanker segment.GE Shipping

GE Shipping is the largest private sector shipping company in the country and has a tonnage capacity of 2.47 mdwt (million dead weight tonne). As part of its fleet, the company has 68 vessels, including 37 ships (29 tankers and 8 dry bulk carriers) and 31 offshore vessels. GE Shipping is predominantly focused in the crude and product transportation segment with largely 'Aframax' type tanker mix (88% of the total capacity are tankers). Notably, as against the world average of 14.3 years, the company's tanker fleet is relatively young at 13.2 years, and this gives it an edge over many other domestic and global shipping companies. The company also has a diversified presence into oil drilling rigs, marine construction and air logistics. GE Shipping's revenues and profits have grown at CAGR of 7% and 12% respectively, during the period FY95-FY04.

Teekay Shipping

Teekay Shipping (the Canadian shipping major), on the other hand, is primarily engaged in the shipment of oil and petroleum products through its large fleet of 152 vessels, which includes product carriers, Suezmaxes, Aframaxes and VLCCs (very large crude carrier). The company carries more than 10% of the world's seaborne oil. Its business is divided into two segments - spot tanker segment (fleet of approx. 85 tankers trade at market-related rates) and fixed-rate segment (large portfolio of long-term contracts that provide stable cash flows through the shipping cycle). During the period FY95-FY04, the company's revenues and profits have grown at CAGR of 24% and 45% respectively.

Both GE Shipping and Teekay Shipping have witnessed similar fortunes over the past years (see the graph above). And since the beginning of FY04, things have looked good for both these companies. The benefits, especially during FY04, arose due to the strengthening of the spot tanker market that rose to its highest level since 2000. This strength in the spot markets was attributable to strong tanker demand and restrained fleet growth. Also, the Prestige incident during the first half of 2003 and crude inventory building by the US ahead of the Iraq war boosted tanker freight rates. These rates did not soften during the second half as well as strong global economic growth (especially in the US, China and other Southeast nations) drove up world oil demand. This led to a significant increase in tanker demand that grew at an annual rate of 7% during the year. According to the International Energy Agency (IEA), global oil demand grew by 2.1% in 2003, the fastest growth in the past 6 years.

Both the companies, especially Teekay, which has a major presence in the global tanker market, benefited from the whole scheme of things. For GE Shipping, apart from benefits in the tanker segment, increased demand of commodities (iron ore, steel and aluminium) led to rising freight rates in the dry bulk segment as well. Growth in topline of Teekay is on the higher side also because of its inorganic growth strategies.

At their respective current prices, while GE Shipping trades at a P/E multiple of 4.7x FY04 earnings and 3.8x our expected FY06 earnings, Teekay is trading at a 9.2x FY04 earnings. On the basis of price-to-book value, while GE Shipping is trading at 1.4x FY04 book value and 0.9 x our expected FY06 book value, Teekay trades at 2x FY04 book value. The higher valuation of Teekay could be attributed to its magnitude of operations and its global presence (GE shipping is just 16% of Teekay's tonnage capacity and 1% of global tonnage).

Teekay, in its FY04 annual report, has stated that a strong global economic growth led by China and the US is expected to result in above average growth in global oil consumption during FY05 as well. It also states that the 2.1% increase in oil demand forecast by the IEA should typically lead to a 3.5% to 4.0% increase in tanker demand.

However, we believe that while growth in global trade has helped both Teekay Shipping and GE Shipping improve their financial performance in recent times, sustainability is still an issue. Especially with the Japanese and Southeast Asian economies still vulnerable to a downturn, and that the Chinese economy is on its way for a slowdown, freight rates could decline on the margin. However, though freight rates could soften, on a point-to-point basis, realisations will still be still on the higher side in FY05.


Equitymaster requests your view! Post a comment on "GE Shipping Vs Teekay Shipping". Click here!

  

More Views on News

G.E.SHIPPING Announces Quarterly Results (3QFY20); Net Profit Up 10.7% (Quarterly Result Update)

Feb 14, 2020 | Updated on Feb 14, 2020

For the quarter ended December 2019, G.E.SHIPPING has posted a net profit of Rs 3 bn (up 10.7% YoY). Sales on the other hand came in at Rs 11 bn (up 10.9% YoY). Read on for a complete analysis of G.E.SHIPPING's quarterly results.

G.E.SHIPPING Announces Quarterly Results (1QFY20); Net Profit Up 78.0% (Quarterly Result Update)

Aug 13, 2019 | Updated on Aug 13, 2019

For the quarter ended June 2019, G.E.SHIPPING has posted a net profit of Rs 540 m (up 78.0% YoY). Sales on the other hand came in at Rs 8 bn (down 4.7% YoY). Read on for a complete analysis of G.E.SHIPPING's quarterly results.

More Views on News

Most Popular

This Smallcap Stock Could be the Next Titan (Up 1,400% in 10 Years) (Profit Hunter)

Feb 11, 2020

A blueprint to latch on to the next 'Crorepati' stock - and an event I hope you won't miss on any account.

Here's Why I Recommended 15 Stocks in One Day Flat Views On News (Views On News)

Feb 14, 2020

This proven strategy can give big returns in quick time.

CoronaVirus' Impact on Indian Markets - And One Stock With the Potential to Make Crores... (Profit Hunter)

Feb 7, 2020

Even as the experts come to grips with impact of Coronavirus contagion on Indian stocks and economy, here's a stock not just immune to macro threats, but with the potential to offer crores in the long term.

Will Algo Traders Take Away All Your Profits? (Fast Profits Daily)

Feb 11, 2020

How to fight back against algo trading systems.

A Megatrend to Help You Find the Best Stocks of the Next Decade (The 5 Minute Wrapup)

Feb 12, 2020

Recent events have put climate change into the spotlight. Here's how you should play this megatrend...

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get our special report, Secret to Increasing Your Trading Profits Today Now!
We will never sell or rent your email id.
Please read our Terms

G.E.SHIPPING SHARE PRICE


Feb 20, 2020 (Close)

TRACK G.E.SHIPPING

  • Track your investment in G.E.SHIPPING with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

G.E.SHIPPING - BHARATI DEFENCE AND INFRA COMPARISON

COMPARE G.E.SHIPPING WITH

MARKET STATS