Analysis 2015: what we got right – and what we got wrong

©Carnial Machado

Before the 2016 reporting season kicks off, it seems an appropriate time to take a last look at 2015 and see which of our company analyses we got right; and which we got wrong.

By way of explanation, just over a year ago I was commissioned by The Loadstar to write a series of opinion pieces on publicly traded logistics and transport stocks – the first being on Atlas Air Worldwide on 10 November 2014.

Then I was not convinced Atlas Air would be able to deliver much value to its shareholders, particularly in the light of its capital structure. But the business has held up relatively well, despite its latest trading update showing a net loss attributable “to common stockholders of $12.8m, or $0.51 per diluted share, in the third quarter of 2015 compared with net income (…) of $27.6m, or $1.10 per diluted share, in the year-ago period,” according to a press release.

“Reported results in the third quarter of 2015 were primarily due to a charge on the early extinguishing of debt following the refinancing of higher-cost debt with proceeds from lower-cost debt.”

Its shares – which rose to a multi-year high of $59.47 in January 2015 – hit a 52-week low this week, when they fell to $32.94. That’s a 44.6% drop in just less than a year.

However, Atlas has managed to refinance its debt obligations at more convenient rates, which is a good thing – but the group has also had to deal with some other issues in recent weeks, and we will see the effects of these when it announces fourth-quarter results next month.

Dow Jones reported last week that Atlas had agreed to “settle price-fixing allegations, the latest chapter in a decade long legal battle that has forced air cargo carriers to pay more than $1bn in reparations to disgruntled clients”. As a result, Atlas will take a $100m charge against fiscal fourth-quarter earnings.

Ownership changes

Elsewhere, we expected bids for Con-Way and UTi Worldwide, and both attracted interest from highly ambitious rivals.

In Q2 2015, I wondered: “Is this the perfect moment for Con-way to steer itself into the busy M&A arena?” As it turned out, Con-way received a full-blown bid from XPO Logistics, which carried a 30% premium, as we previously anticipated. The deal successfully closed in October.

Meanwhile, an offer for UTi Worldwide was long overdue and we now have to wait just a few weeks before DSV wraps up the deal.

In early April, I wrote that a “grim fourth quarter may expose UTi Worldwide to a new takeover bid by its European suitor”. At that point, I didn’t buy into UTi’s restructuring, and events proved me right only a few months later – but UTi’s management changes provided the basis for which the takeover deal could proceed.

The corporate strategy of DSV, meanwhile, did not surprise me at all: “Stock market darling DSV needs to buy not build after disappointing final quarter”, I wrote in early 2015. How did I know that?

It was written in the stars.

FedEx & UPS

FedEx stock has been under a huge amount of pressure in recent times, just as we expected last year, and as we noted in out recent coverage.

Soon after the TNT Express deal was announced in April 2015, I wrote: “FedEx shareholders have seen their holdings rise 3% – some three percentage points above the S&P 500 Index – in the last few days of trading, but short-term gains and long-term value are two very different things.”

FedEx received the green light for its takeover of TNT last week, so despite the criticism for the way deliveries over Christmas were handled its management can now focus on a new era of expansion

But I have been surprised by the relative share strength of its domestic rival UPS – its stock isn’t exactly a safe haven, but offers a much higher yield, which enticed investors.

Maersk

I expected value destruction at Maersk, particularly in the wake of its second-quarter results.

“There must be a sense of relief in the Maersk boardroom following its second-quarter results last week – although it may be too soon to crack open any champagne,” I wrote on 18 August. Its stock has fallen 36% since, and a profit warning was issued in October – headwinds are very likely to persist, as I highlighted in my recent coverage.

Meanwhile, the drop in the equity valuation of Panalpina was hardly a big surprise, while elsewhere we also predicted big challenges for Hapag’s initial public offering, whose guidance was trimmed. Before that happened, we sent a message of caution to retail investors.

“Quite simply, my personal advice to them would be to leave the risk to professional investors who have no alternative choice but to participate in the fundraising,” I noted on 6 October.

Asciano and Radiant

“Anyone who considers a fully-fledged takeover of Asciano as a done deal may be left with a bitter taste in his month,” I noted in July.

There have been a few developments, but, as we predicted, the deal will need some serious negotiations in order to please regulators. As far as Radiant is concerned, its aggressive M&A strategy has determined value destruction, as I predicted in September, and its shares have lost 30% of value during the period.

Where we got it wrong

More equity for Air France and Lufthansa wasn’t needed – and here we get into “bad news territory” for my predictions – although the French carrier is still finding it difficult to justify its cost base, while its German rival – as we rightly predicted well ahead of time – chopped its dividend.

Low fuel prices have bailed out both carriers, a topic I briefly touched upon in my recent coverage.

My biggest failure has to be attributed to the inaccuracy of predicting the stock performances of XPO Logistics and Echo Global, both of which have really struggled to cope with volatile market conditions. The shares of the former are down over 50% since last summer, while those of the latter have lost over 40% of value over the period.

Have I missed anything? If so, please get in touch directly with me at [email protected] or with The Loadstar editors.

Once again, thanks to all readers for your support in 2015 and a happy and prosperous new year to you all!