Comparing Public and Private Shipping Company Valuations
Valuing a private shipping company is a one-step exercise—(1) calculate the Net Asset Value (NAV): the value of the company’s fleet of vessels, plus its cash balance, minus its outstanding debt.
Valuing a public shipping company is a two-step exercise—(1) calculate the NAV (see above) then (2) multiply the NAV by an appropriate Price-to-NAV (P/NAV) ratio, a discount or, in rare cases, a premium, to arrive at the company’s market valuation.
Both NAV and P/NAV can be highly volatile. When examining similar (“peer”) public shipping companies, their valuation varies widely–
Crude tanker peer companies: Frontline trades at 1.09x (a 9% premium to its NAV); Teekay Tankers trades at 0.65x (a 35% discount to its NAV).
Dry bulk peer companies: 2020 Bulkers trades at 0.89x (an 11% discount to its NAV); Himalaya Shipping trades at 0.57x (a 43% discount to its NAV).
Even within a single publicly traded company, P/NAV can fluctuate significantly over time.
Container ship owner Euroseas has traded at an average P/NAV of 0.54x over the past five years but traded as high as 1.15x P/NAV in Q1 2021, after hitting a low of 0.26x in Q1 2020 (before the pandemic began).
Public shipping companies’ end valuations are far more variable than private shipping companies’, since the latter group doesn’t have the constant mark-to-market pricing mechanism of public markets–P/NAV–as a factor.
In private shipping companies, P/NAV is assumed to be 1.00x; in publicly traded shipping companies, trades are mostly at a discount materially less than 1.00x.
The fact that P/NAV doesn’t factor into private shipping companies’ values:
Offers stability as a key selling point for investors.
Discourages private shipping companies from becoming public.
An initial public offering (IPO) provides companies with liquidity for their shares, increased visibility in the market, and improved access to financing—but those benefits may not be worth the risk for pre-IPO stakeholders if their stakes become substantially discounted when company shares begin trading.
