ZIM: Last Dividend

ZIM Integrated Shipping Services Ltd. (NYSE:ZIM) investors were warned last year that dividend payments were coming to an end. The container shipping company reports earnings prior to the open on Monday and the company should provide details on the last dividend payment for this cycle. My investment thesis is more Bearish on the stock with clear signs losses are the likely outcome of the next couple of years.

Container Shipping Indexes Collapsing

ZIM reported Q3'22 results back in mid-November and already guided to the most likely outcomes for Q4. The guidance forecasted a dip in adjusted EBITDA in the 2H of Q4 to the extent of where the shipping company will be producing limited positive EBITDA heading into 2023.

The guidance was for the following Q4'22 numbers:

• Adjusted EBITDA - $0.8 to $1.1B
• Adjusted EBIT - $0.5 to $0.8B

What is crucial about guidance is that world shipping container indexes continue to collapse. The Drewry World Container Index for March 9 fell to $1,806 per 40ft container. The index was at $2,591 right after ZIM reported Q3'22 numbers for a massive 30% dip in just the 4 months since the company reported quarterly numbers.

In the last week alone, the index fell $53 per 40ft container. The spot rate on most routes continue to fall 2 to 3% per week.

The SCFI Index dipped to $906 on March 10 and ZIM provides this handy chart of how the index generally traded at this level or above in 2019.

Not only are the commonly used container indexes back to 2019 levels, but the prices are still falling fast. At the same time, a lot of new ships are contracted to be built over the next couple of years.

Last Dividend

The consensus analyst estimates project ZIM to earn $3.05 in Q4'22, though the company has several analysts that only forecast annual EPS estimates. Based on this EPS estimate, the company will pay a dividend at the 30% announced dividend rate of $0.92.

The market isn't focused too much on this dividend. The question is whether ZIM pays the nearly 20% dividend true-up for 2022. The company is projected to earn $37.65 for the year based on these projections and strong earnings through the first 3 quarters of the year.

ZIM has paid the following dividends in 2022 with only a $0.75 payout based on the annual EPS target:

• Q1'22A - $2.85 (20%)
• Q2'22A - $4.75 (30% + 10% Q1 one-time catch up)
• Q3'22A - $2.95 (30%)
• Q4'22E - $0.75 (30%)
• 2023E - $11.30 (30%)

The key here is that dividend pay-outs are likely to end with this quarter with the company now projected for breakeven EPS in 2023 leading to a loss of $3 per share in 2024. Technically, ZIM might earn a small profit in Q1'23 leading to a tiny dividend payout, but for all practical purposes an investor shouldn't expect the container shipping company to pay much in the way of dividends in 2023.

A very important aspect of the sudden collapse in EPS estimates of 2023 and 2024 is that the lowest analyst estimates forecast ZIM losing $8 and $12 per share, respectively. Management may be unwilling to pay the true-up dividend with losses mounting going forward.

Barclays Analyst Alexia Dogani noted how ZIM faces much higher unit shipping costs now while charter rates are collapsing. The firm estimates costs are up by at least 45%.

ZIM has a ton of cash, but a full 20% true-up dividend for 2022 would amount to a $7.53 dividend payout per share. The company has ~120 million shares outstanding leading to a massive dividend payment of over $900 million, on top of the Q4'22 dividend payment in the $90 million range.

In total, ZIM would need to make a $1 billion dividend payout in order to meet the 20% true-up payment. The current financial conditions with a larger bank closure in the U.S. doesn't appear supportive of the BoD freely agreeing to a large dividend payout.

Takeaway

The key investor takeaway is that ZIM trades at $20 and the shipping company is unlikely to pay dividends in excess of $1 over the next couple of years. With the company likely reporting large losses through 2024, the stock isn't appealing at these levels.

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