On the wires: Wincanton in a sweet spot
Exploiting secular growth tailwinds
The P&O Ports brand name is set to re-enter the maritime business after Dubai’s Ports, Customs and Free Zone Corporation (PCFZ) announced that it is to become a vehicle for the country’s investment in international general cargo and break bulk terminal projects.
P&O Ports is a name spoken with some veneration, but it disappeared after its portfolio of global terminals was taken over by DP World in 2006. Six US terminals ended up outside the deal after becoming the subject of an infamous controversy, as a group of ill-informed and cynically bellicose politicians, Hilary Clinton among them, “discovered” that the facilities were being acquired by a Middle Eastern company and caused such a political storm over “national security” that the units were sold on to an American investment company.
Although the newly revamped P&O Ports will be controlled by the PCFZ, its chairman is Sultan Ahmed Bin Sulayem, also chairman of DP World, and there will inevitably be some strategic alignment between the two.
He announced today that P&O Ports already had a series of projects on the drawing board.
“We are pleased to announce that P&O Ports has signed MoUs to enter into preliminary discussions with the governments of Madagascar, the Port of Berbera in the Republic of Somaliland and Albania to enhance their port infrastructure. The launch of P&O Ports complements Dubai’s global investments in the port industry and diversifies its operations to include maritime terminals of all sizes,” he said.
The company explained that the rationale for the development was the increasing need of smaller ports to develop new facilities and upgrade equipment, although their scale meant they were not of interest to the main international terminal operators.
There are, of course, likely to be areas where there is confluence of strategy – this week DP World announced that it had signed an MoU with the government of the Maldives to develop the ports infrastructure in the country, a move that Drewry’s equity analysts perceived to be an attempt to take on Colombo’s position as the pre-eminent transhipment point in the Indian Ocean.
“The expected port development would handle mainly transhipment volume, which it could wrestle from the next nearest hub at Colombo. Maldives as a transhipment hub is a digression from DP World’s core strategy of handling higher gateway cargoes, which allows for higher margins.
“The location of Maldives is strategically more ideal as a crossroad between Far East-Europe and Far East-Africa trade lanes than the Colombo port. While DP World may be able to gather transhipment market share from Colombo, the proposed deep-sea port at Maldives could potentially cannibalise transhipment volume at Jebel Ali,” they wrote, adding that the best strategy for DP World would be to operate it as a low-margin facility, possibly in partnership with a shipping line.
Nonetheless, Drewry called DP World its “star pick for 2015” and predicted that while debt levels would reach their highest this year, there would also be a commensurate rise in cash as proceeds begin to come in from its recently purchased Economic Zones World. Net gearing would continue to fall in 2016 and 2017 as Capex requirements are predicted to decline and revenues grow.
That will be in addition to climbing volumes as a series of investments begin to show a return. New capacity has recently come on stream, or is set to do so, at Embraport in Brazil, London Gateway, Rotterdam Gateway, Yarimca in Turkey and the Indian gateway of Nhava Sheva, with all of these designed to handle gateway traffic rather than the more capricious transhipment flows.
“About 70% of the company’s gross portfolio volume comes from gateway volumes. We are optimistic that management’s target of 50-54% EBITDA margin is scalable when these new terminals achieve economies of scale,” Drewry Maritime Equity Research said in a note.
DP World posted an adjusted EBITDA in last year of $1.56bn, which Drewry has forecast to rise significantly to $2.07bn in 2015, followed by $2.28bn in 2016 and $2.5bn in 2017.