Clarkson Platou: (MPCC NO, NOK 19.26, Buy, PT: NOK 40.00)
MPC Container Ships (Oslo: MPCC) is too cheap to ignore, we argue. We estimate that the current backlog plus scrap value of the fleet equates to NOK 19 per share. Given that the stock price is at the same level, there is very limited downside in the shares, in our view. We estimate a potential NOK 5.20 per share dividend for 2022, representing 75% of underlying earnings and another NOK 3.60 per share for 2023. In addition, we believe vessel sales allow for NOK 1-1.50 per share as an extraordinary distribution in 1Q22. We estimate the current NAV at NOK 44 per share. Even if ship values were to decline to newbuild parity, NAV would be above NOK 30 per share, all else being equal. We are less worried about the containership market prospects than the apparent average investor, and believe MPCC should be able to book the majority of their fleet during 1H22 at elevated charter rates and thus be able to monetize ship values into earnings backlog. We reiterate our BUY rating and NOK 40 target price.

Update on refinancing and capital allocation: As of 3Q21, MPCC had three major debt facilities. The Company plans to repay the $204m bond during 4Q21, likely by calling it at 102% of par, or $208m. Secondly, the DNB acquisition facility of $97.5m, taken on with the Songa transaction, is also planned to be paid back this quarter. The remaining CIT revolving credit facility of $70m ($55m outstanding) is being kept. As previously announced, MPCC has secured a new $180m facility ($130m term loan plus $50m revolver) from Hamburg Commercial bank to be drawn in 4Q21. This means that overall debt reduction is $126m according to our estimates. To fund this, the company, as previously announced, has sold 6 vessels for $135m with delivery during 4Q21. In yesterday's 3Q21 report, the company announced it has sold another two vessels for $54m net to MPCC. The company said that event-driven distributions may be expected from proceeds such as vessel sales in the form of extraordinary dividends and/or share buybacks. MPCC had $76m of cash at the end of 3Q21 (of which $45m are in the subsidiary MPC Container Ships Invest B.V. where the bond is financing part of the fleet). Management said they target a cash buffer of $60-80m. We thus believe at least $50-60m of cash could be returned to shareholders as an extraordinary distribution in 1Q22, probably as share buybacks given the already significant dividend distribution from earnings.

Valuation: MPCC has a fleet on average around 15 years old. The average size of the consolidated fleet is 2,100 TEU. As shown in the attached chart, current broker value of the average ship is $32m where scrap value is $5m per ship on average. A 3-year TC at $35,000/day would give approximately $10m of annual EBITDA, hence the present value of this cash flow plus scrap explains the current broker values. If we use the current ship values (adjusted for the charter backlog), we arrive at a NAV of NOK 44/share. Now, clearly the market is unwilling to price in this fully at the moment. As also shown in the nearby chart, the newbuild parity of such a ship is around $15m. If we instead use this valuation we would arrive at NOK 30.50 per share, including the charter backlog. Even in the most conservative estimate where you put the future value to scrap value of $5m when contracts end, we arrive at an equity value of NOK 18.90/share. In sum, we find that the stock market is pricing in only the present value of the charter backlog and scrap value of the fleet, which is too conservative in our view. Given the upcoming dividend distributions, we feel the upside potential outweighs the downside risk in the stock.

Pareto: MPC has booked 80%/50% of 2022/23 and has fixed forward four vessels at no discount starting in Q4’22. A conservative YE’23 equity value of NOK 20 defends today’s share price assuming the 75% of EPS adj. policy and a scrap value on the fleet. While we understand how the market is worried about a potential shareholder overhang there is also now plenty of fire power to launch a tender offer in early 2022 – which also will increase DPS as payments commence. With NOK ~5 in annual DPS (25% yield) we see limited downside at 2022 EV/EBITDA 2.5x and P/E 3x. Reiterate BUY, TP NOK 31 (30) due to FX.