A share buyback announcement on April 11 by Samudera Shipping Line was followed by a jump in Samudera’s share price and trading volume. Is this justified? Not really. Here’s why.
Going by the chart of WCI Composite Container Freight Benchmark Rate per 40-foot Box Drewry, it appears that freight rates are declining, and this year’s freight rates are set to be lower than 2022’s rates.
Samudera had a banner year in 2022 because its earnings were boosted by high freight rates. According to its annual report, average freight rates for FY2022 ended December 2022 were significantly higher compared to FY2021, even after accounting for some softening in rates towards the final quarter of the year. In addition, container volume handled by Samudera rose by 28.5% y-o-y in 2022. Hence, revenue for Samudera’s container shipping segment rose 88.8% to US$963.4 million ($1.28 billion), from US$510.3 million a year ago.
In Samudera’s FY2022, its net profit more than doubled to US$322 million and earnings per share (EPS) rose 150% to 59.95 US cents. The dividend policy is for a payout of 20% and the average dividend payout ratio during the past 10 years is 40%. For FY2022, Samudera paid out an interim dividend of 7 cents and is planning to pay out a final dividend of 0.75 cents and a special dividend of 24.25 cents. Altogether, the dividend of 32 cents works out to a payout ratio of 40% since EPS is in US cents.
Inflation rates ebb
If elevated logistics costs contributed to inflation during and in the aftermath of the pandemic, then, by the same token, as freight rates fall, inflation is set to ebb. This is being borne out by the latest US inflation figures where CPI came in at 5% y-o-y or 0.1% m-o-m for March, slightly lower than expectations.
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According to Freightos, ocean freight rates have come down since spring 2022 (MarchApril) with China-West Coast US rates hitting pre-pandemic lows. Freightos data shows that rates to ship a 40-ft container from Asia to the US West Coast dropped by 80% from end-April 2022 to February.
Freightos has also developed a weekly index of freight prices using data such as less than container load, full container load, and air cargo export from cities in Southeast Asia to the most popular Amazon fulfilment centres in the US and these are at one-year lows.
Samudera’s share buyback mandate is to keep the share price part of its shareholder returns stable.“ The share buyback mandate would provide the company with the flexibility to purchase or acquire shares if and when circumstances permit. This will provide the Directors with greater flexibility over the company’s share capital structure, to enhance the earnings and/or NAV per share,” the April 11 circular states.
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The directors are hoping that the share buybacks will help to mitigate shortterm share price volatility or trading trends, offset the effect of short-term speculation as and when they may occur and bolster shareholders’ confidence, the circular adds.
During the pandemic, Samudera caught investors’ imagination as its ships plied the regional seas to deliver goods when we were in various stages of lockdowns. Now, as economies reopen, other sectors may provide more exciting returns.
