Low Carbon Shipping And Offshore Wind Catalysts Will Drive Stronger Long Term Earnings Potential

Catalysts

About Cmb.Tech

Cmb.Tech operates a diversified global shipping platform across dry bulk, tankers, containers, chemicals and offshore services, with a growing focus on low carbon propulsion technologies.

What are the underlying business or industry changes driving this perspective?

• Step change in spot exposure on large dry bulk and tankers at a time of tightening supply, aging fleets and rising tonne mile demand, which can translate current strong rate environments into higher revenue and EBITDA over the next several years.
• Accelerating development and expected wider adoption of ammonia and hydrogen-based dual fuel propulsion, supported by regional regulation and falling green molecule costs, positioning Cmb.Tech to capture premium charters and improve net margins as decarbonization demand deepens.
• Structural undersupply and aging of global offshore support and service fleets, combined with growing offshore wind and oil and gas project pipelines, support high utilization and pricing power for WindCat CSOV and MP-ASV vessels, lifting segment earnings and return on invested capital as the orderbook delivers.
• Limited newbuilding orderbooks relative to demand in core Capesize, Newcastlemax and tanker segments, alongside potential scrapping from historically high average vessel ages, underpin sustained rate strength that can accelerate deleveraging, reduce interest expense and boost free cash flow and earnings.
• Post-merger scale from Golden Zhoushan, funded CapEx and active refinancing of higher cost bridges and leases create room for lower average funding costs, higher operating leverage and greater capacity for dividends or buybacks once the balance sheet converges toward the targeted 50 percent loan to value, enhancing earnings per share.
• Growing long haul iron ore and bauxite trades from Brazil and Guinea and ongoing FPSO deployments in Brazil increase structurally long routes and utilization for Cmb.Tech’s large bulk and offshore fleets, supporting higher sustained day rates and more resilient revenue through the cycle.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Cmb.Tech's revenue will grow by 27.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.6% today to 20.5% in 3 years time.
• Analysts expect earnings to reach $558.0 million (and earnings per share of $2.6) by about December 2028, up from $164.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $798.1 million in earnings, and the most bearish expecting $127.9 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 18.8x today. This future PE is lower than the current PE for the GB Oil and Gas industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.07%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The heavy tilt toward spot exposure in dry bulk and tankers means earnings are highly sensitive to the current rate cycle. A normalization of tonne mile growth, lower China steel utilization or weaker Brazil and Guinea iron ore exports could quickly compress day rates and materially reduce revenue and EBITDA over the next few years.
• The tanker and container order books are already elevated, with VLCC and Suezmax order book to fleet ratios of 15 percent and 20 percent and container order books at 32 percent. Additional yard capacity into 2028 and weaker demand growth could swing these markets into oversupply and erode net margins once the current tightness fades.
• The decarbonization strategy relies on early adoption of ammonia and hydrogen dual fuel technology. Delays or failure of global IMO carbon pricing, a prolonged wait and see stance from charterers and competition from alternative fuels like LNG could limit premium charter opportunities and leave Cmb.Tech with higher capital costs that weigh on earnings.
• The company is still digesting large M&A and a sizeable newbuild program, with elevated interest expense from bridge financing and leases and significant CapEx through 2026. Any setback in refinancing plans, slower deleveraging or higher for longer base rates would keep finance costs high and constrain free cash flow available to shareholders.
• Offshore wind and oil and gas support markets underpin the investment case for CSOV and MP ASV vessels. Project delays, higher than expected competition from newbuilds and a cyclical downturn in offshore spending could reduce utilization and day rates for these specialized assets and drag on segment level returns and consolidated net profit.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €10.48 for Cmb.Tech based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $558.0 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of €9.22, the analyst price target of €10.48 is 12.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.