Outlook Brighter For CSAV
BMI View: BMI believes that things will pick up for Chilean container-shipping company Compañía Sud Americana de Vapores in 2013 as the firm's hard work in turning its fortunes around following a disastrous 2011 and H112 begins to pay off. The company might be transporting far less boxes than it has done, and the firm's market share is far less than it was, yet it is reporting profits for the first time since 2010.
From nowhere CSAV entered the top 10 container shipping companies following a massive fleet expansion built on credit. Unfortunately for CSAV's shareholders, the gamble did not pay off as demand for containerised shipping did not recover as quickly as had been hoped. On the supply side rates were driven down even further by an unending influx of new tonnage. No shipping company has been immune from the poor operating conditions, not least CSAV, which saw its losses mount steadily through 2011 and 2012. CSAV recorded an operating loss of US$959mn in 2011 and a net loss of US$1.24bn.
As a result of these losses, CSAV was forced to restructure its debt. In early 2012 the company issued US$412mn in new stock to complete a US$1.2mn capital increase, which forms a key part of the company's restructuring. The capital increase included US$547mn invested by the Luksic family's Quiñenco Group, which now holds 37.44% of the company. Marinsa, controlled by the Claro group, purchased US$100mn, and has a 12.35% stake. Other shareholders and third parties acquired US$533mn worth of shares.
|A Long Way To Go|
|CSAV Share Price, CLP|
In tandem with this restructuring came a massive rethink of strategy. The policy of aggressive expansion was abandoned with the aim of cutting down the fleet and consolidating its operations. From the sixth-largest container-handling shipping company in the world, CSAV dropped dramatically down the chart as it sold off its fleet, and now sits in 20th place, with a market share of 1.6% and a carrying capacity of 267,088 twenty-foot equivalent units (TEUs). CSAV now depends on joint services with other carriers for almost 90% of its volume, up from about 30% in early 2011, and it has been concentrating on providing services on trade routes on which it has competitive advantage - namely Latin American routes. The percentage of chartered-in vessels in CSAV's fleet has risen to 82.0%, considerably greater than any other firm in the top 20. This gives the Chilean carrier the ability to more easily cut down its fleet and minimise losses if another downturn hits.
Despite having handled 37.6% less boxes in Q312 (latest results available) than in the same quarter in 2011 - 489,675 TEUs to 785,139 TEUs - CSAV turned a profit for the first time in seven quarters, indicating that its strategy is beginning to pay off. Net profit for the three-month period was US$55.8mn, compared to a loss of US$140.2mn in the second quarter, and a loss of US$357.5mn in Q311.
CSAV's share price has been picking up as a result of the improved outlook for the firm. The company has been traded on the Santiago Stock Exchange since the bourse first opened in 1893, yet since reaching its record high of around CLP200 in October 2010 the stock had been falling dramatically, dropping to CLP42.2 in November 2012. Since the start of the year, however, this has been ticking steadily back up and now stands at CLP52.78. With a carefully managed, slimmed-down fleet, BMI believes that this will continue to climb in the coming months.