What is fueling ZIM Stock's Run?
Zim Integrated Shipping Services (NYSE: ZIM) is gaining momentum with ZIM stock rising 43% since mid-December. However, it is still down 90% on the year.
However, this low float stock has caught the attention of investors due to a number of factors including its short squeeze potential and its position to benefit from ongoing Houthi attacks on commercial ships passing through the Red Sea.
With management announcing plans to address the company's underlying issues, ZIM stock could be poised for a huge recovery in 2024 if the container shipping industry continues to benefit from these geopolitical tensions.
ZIM Stock Background
Zim Integrated Shipping Services, together with its subsidiaries, is an Israeli company that provides container shipping and related services in Israel and internationally. It provides door-to-door and port-to-port transportation services for various types of customers, including end-users, consolidators, and freight forwarders. The company also offers ZIMonitor, a premium reefer cargo tracking service.
Zim achieved a great deal of success during the pandemic thanks to global lockdowns which drove consumers to online shopping. Americans alone spent $1.7 trillion online from 2020 to 2022. That’s a massive $609 billion more than the two years before Covid-19, representing a 55% increase in online spending.
This online shopping spree drove demand for shipping, increasing the cost of transporting containers globally. Thanks to increased shipping demand, ZIM delivered 2.5 years of great financial results from mid-2020 through 2022, including net income of nearly $10 billion.
ZIM also offered high dividends of around $2.00 to $2.50 per share in 2021. Retail investors were obviously drawn to ZIM's high dividends and ZIM stock surged 830% from February 2021 to March 2022.
Post-Pandemic
ZIM stock came crashing down when lockdowns were lifted in most countries and people started making up for lost time during the pandemic. Consumer behavior changed drastically as people started spending more money on services rather than goods. As a result, Americans spent $11.6 trillion on services, compared to $5.9 trillion on goods in 2022.
For Zim, this meant lower freight rates as well as declining volume. If you look at Zim’s 2022 Q3 results and check the company’s revised 2022 full-year guidance, you’d see that the company was projecting a decline in freight rates, softer demand, and flatter volume compared to 2021.
As a result, ZIM stock dropped by more than 70% in 2022, and its net income in Q4 2022 was $417 million, compared to $1.71 billion in Q4 2021.
The company attempted to salvage the situation in April then August of 2022, when it raised its dividend yield to near 20% and 40% respectively. However, Zim was forced to pause its dividends after it recorded a loss of $58 million in Q1 2023. The second quarter of 2023 also saw a loss of $213 million, while the third quarter’s loss equaled a massive $2.27 billion. Now, Zim’s forward dividend is equal to zero.
The Houthi Attacks
A new conflict started between Israel and Hamas in October of this year, and since Zim is an Israeli company operating in the region it has had exposure to the conflict. ZIM stock fell roughly 30% since the attack happened until the end of November.
As the conflict progressed through November and December, the Shia Islamist Houthi group in Yemen started attacking commercial ships passing through the Red Sea. These strikes are meant to cause economic pain on Israel’s allies that pass through the Red Sea for trade, and force them to put pressure on Israel to allow aid into Gaza and end the war.
It was during this time that major shipping companies, including Maersk (CPH: MAERSK-B), Hapag-Lloyd (OTCMKTS: HPGLY), and Evergreen (NASDAQ: EVGR), announced that they would pause shipping through the Red Sea amid fears of Houthi attacks. Additionally, the oil company BP (NYSE: BP) said that it would do the same, a move that caused oil and gas prices to surge.
Following these companies, Zim has also announced that it will be taking measures to ensure the safety of its crews, vessels, and customers' cargo by rerouting some of its vessels. As a result, ZIM stock, as well as the stocks of many other shipping companies, surged on the news.
Hapag-Lloyd stock advanced 16% in Frankfurt trading, while Maersk rose 7.9% in Copenhagen. On the other hand, ZIM stock increased more than 35% in early December.
Investors' sentiment reversed since shipping companies are being forced to take the much longer route around Africa instead of through the Suez Canal. Taking this much longer route will no doubt increase costs significantly, however, these increased costs can be passed on to consumers as shipping companies raise prices. Raising costs due to the security risks and longer route could result in higher profits for shipping companies which is why public shipping companies like ZIM are seeing some momentum.
A Potential Short Squeeze?
Besides this catalyst, ZIM stock has increased as much as 75% in December, marking its strongest monthly performance in more than 2 years.
Yet, ZIM's short interest has reached 24% which is near the highest level in at least 3 years. This level of short interest and momentum from retail traders which own 59% of the roughly 95 million float could force shorts to cover their short positions.
Notably, short sellers have made over $100 million so far this year in ZIM stock, but they have lost $63 million in December. This combination of factors could make ZIM stock ripe for a short squeeze.
Technical Analysis
Looking at the hourly timeframe for ZIM stock, we can see that it's been trading in a downwards channel for some time. The stock increased on higher than average trading volume and tested the resistance at $12.01 before pulling back.
When looking at the indicators, ZIM stock is trading above the 200 MA but recently dropped below the the 50 MA. The 50 and 200 MAs recently crossed over forming a golden cross which could signal a bullish shift in trend. After becoming overbought, the RSI recalibrated on the pullback and is neutral at 47.26.
With ZIM stock trading just below the 50 MA, it could either successfully break out above it or drop lower after failing to break through. Traders bullish on ZIM stock should wait for a successful breakout above and retest of the 50 MA before taking a position. Whereas, bears can go short if the break out fails and short ZIM stock based on its bearish fundamentals.
Is ZIM Stock a Good Investment?
While in the short term, ZIM stock could continue to rally, in the long term its outlook is quite different. During the Q3 earnings call, Zim’s management team made it clear that the company is following strategic plans with a strong focus on the long-term to help Zim return to profitability.
One of these plans is returning some of its vessels. Zim is classified as a light-assets company, meaning that it doesn’t own all of its vessels, but just rents them. By the end of 2022, Zim had 150 vessels in its fleet, of which 9 were owned by the company and 141 were rented.
Some of Zim’s leases on these vessels are expiring in 2024 and 2025. As is, the company plans on not renewing them to reduce its capacity and costs thereby strengthening revenues and profitability. While this will be a slow process, with roughly 2 years before the leases expire, it’s still a move in the right direction.
Another thing management did was use the profits earned during the pandemic - around $10 billion of net income - to pay off a lot of debt. Additionally, this period of profitability led to a significant cash balance of over $3 billion in Q3. This means that the company has a healthy balance sheet and isn’t facing the risk of running out of money anytime soon.
Zim’s long-term plans also include a fleet renewal program secured through a series of charter agreements. The company invested in 46 newly built container ships, of which 28 are powered by liquified natural gas, which is natural gas that has been cooled into a liquid form and faces no risk of exploding if there is any sort of leak or spill. It is also considered a cleaner source of energy than oil and coal. This allows Zim to have a younger, more fuel and cost efficient fleet by 2025, ultimately reducing its costs and increasing its competitiveness.
In order to achieve this, Zim entered a strategic supply agreement with Shell in order to secure liquified natural gas at competitive prices. The company also bought almost $1 billion worth of containers with a particular focus on reefer propositions. According to CEO Eli Glickman, the company now owns the youngest reefer fleet in the industry, which will allow it to compete for high-value cargo.
Zim’s management has also tried to reassure investors by sharing that Israel accounts for only 10% of the company’s volume. Even though Zim isn’t stopping its operations in Israel or near it, investors will be relieved to know that 90% of the company’s business isn’t in an area of war.
ZIM Stock Forecast
When looking at Zim’s 2023 full-year guidance, we can see that the company projects an adjusted EBIT loss of $400 million to $600 million, expects a continued weakness in freight rates with no recovery from current levels, a slight decline in the company’s YoY, and higher than previously projected bunker costs.
While it’s unlikely that Zim’s new plans will help it achieve profitability anytime soon, but they could help reduce costs and return the company to efficiency and a better cash flow.
Speaking of cash flow, it’s important to note that despite losing money Zim is still achieving positive cash flow from operations, totaling $338 million in Q3. This is a good sign for the company, since its losses can be reduced after it reduces its long-term assets like the vessels, and therefore reduce non-cash expenses like depreciation.
In the income statement, you have to record non-cash expenses such as depreciation for long-term assets, but it’s not necessarily a cash outflow. So, even though Zim is losing money, it’s still generating cash inflow which is a good thing.
Overall, the company’s management team is competent and its plans to return to profitability are solid, but the company faces geopolitical risks and the impact of changing consumer behavior. The latter is still a persisting problem, one which Zim’s management admitted they had expected it to reverse sooner.
In light of these factors, ZIM stock appears to be a high risk investment, at least in the short-term. But if its management's plans come to fruition, it could see a strong recovery once consumer behavior returns to its normal balance.
However, this low float stock has caught the attention of investors due to a number of factors including its short squeeze potential and its position to benefit from ongoing Houthi attacks on commercial ships passing through the Red Sea.
With management announcing plans to address the company's underlying issues, ZIM stock could be poised for a huge recovery in 2024 if the container shipping industry continues to benefit from these geopolitical tensions.
ZIM Stock Background
Zim Integrated Shipping Services, together with its subsidiaries, is an Israeli company that provides container shipping and related services in Israel and internationally. It provides door-to-door and port-to-port transportation services for various types of customers, including end-users, consolidators, and freight forwarders. The company also offers ZIMonitor, a premium reefer cargo tracking service.
Zim achieved a great deal of success during the pandemic thanks to global lockdowns which drove consumers to online shopping. Americans alone spent $1.7 trillion online from 2020 to 2022. That’s a massive $609 billion more than the two years before Covid-19, representing a 55% increase in online spending.
This online shopping spree drove demand for shipping, increasing the cost of transporting containers globally. Thanks to increased shipping demand, ZIM delivered 2.5 years of great financial results from mid-2020 through 2022, including net income of nearly $10 billion.
ZIM also offered high dividends of around $2.00 to $2.50 per share in 2021. Retail investors were obviously drawn to ZIM's high dividends and ZIM stock surged 830% from February 2021 to March 2022.
Post-Pandemic
ZIM stock came crashing down when lockdowns were lifted in most countries and people started making up for lost time during the pandemic. Consumer behavior changed drastically as people started spending more money on services rather than goods. As a result, Americans spent $11.6 trillion on services, compared to $5.9 trillion on goods in 2022.
For Zim, this meant lower freight rates as well as declining volume. If you look at Zim’s 2022 Q3 results and check the company’s revised 2022 full-year guidance, you’d see that the company was projecting a decline in freight rates, softer demand, and flatter volume compared to 2021.
As a result, ZIM stock dropped by more than 70% in 2022, and its net income in Q4 2022 was $417 million, compared to $1.71 billion in Q4 2021.
The company attempted to salvage the situation in April then August of 2022, when it raised its dividend yield to near 20% and 40% respectively. However, Zim was forced to pause its dividends after it recorded a loss of $58 million in Q1 2023. The second quarter of 2023 also saw a loss of $213 million, while the third quarter’s loss equaled a massive $2.27 billion. Now, Zim’s forward dividend is equal to zero.
The Houthi Attacks
A new conflict started between Israel and Hamas in October of this year, and since Zim is an Israeli company operating in the region it has had exposure to the conflict. ZIM stock fell roughly 30% since the attack happened until the end of November.
As the conflict progressed through November and December, the Shia Islamist Houthi group in Yemen started attacking commercial ships passing through the Red Sea. These strikes are meant to cause economic pain on Israel’s allies that pass through the Red Sea for trade, and force them to put pressure on Israel to allow aid into Gaza and end the war.
It was during this time that major shipping companies, including Maersk (CPH: MAERSK-B), Hapag-Lloyd (OTCMKTS: HPGLY), and Evergreen (NASDAQ: EVGR), announced that they would pause shipping through the Red Sea amid fears of Houthi attacks. Additionally, the oil company BP (NYSE: BP) said that it would do the same, a move that caused oil and gas prices to surge.
Following these companies, Zim has also announced that it will be taking measures to ensure the safety of its crews, vessels, and customers' cargo by rerouting some of its vessels. As a result, ZIM stock, as well as the stocks of many other shipping companies, surged on the news.
Hapag-Lloyd stock advanced 16% in Frankfurt trading, while Maersk rose 7.9% in Copenhagen. On the other hand, ZIM stock increased more than 35% in early December.
Investors' sentiment reversed since shipping companies are being forced to take the much longer route around Africa instead of through the Suez Canal. Taking this much longer route will no doubt increase costs significantly, however, these increased costs can be passed on to consumers as shipping companies raise prices. Raising costs due to the security risks and longer route could result in higher profits for shipping companies which is why public shipping companies like ZIM are seeing some momentum.
A Potential Short Squeeze?
Besides this catalyst, ZIM stock has increased as much as 75% in December, marking its strongest monthly performance in more than 2 years.
Yet, ZIM's short interest has reached 24% which is near the highest level in at least 3 years. This level of short interest and momentum from retail traders which own 59% of the roughly 95 million float could force shorts to cover their short positions.
Notably, short sellers have made over $100 million so far this year in ZIM stock, but they have lost $63 million in December. This combination of factors could make ZIM stock ripe for a short squeeze.
Technical Analysis
Looking at the hourly timeframe for ZIM stock, we can see that it's been trading in a downwards channel for some time. The stock increased on higher than average trading volume and tested the resistance at $12.01 before pulling back.
When looking at the indicators, ZIM stock is trading above the 200 MA but recently dropped below the the 50 MA. The 50 and 200 MAs recently crossed over forming a golden cross which could signal a bullish shift in trend. After becoming overbought, the RSI recalibrated on the pullback and is neutral at 47.26.
With ZIM stock trading just below the 50 MA, it could either successfully break out above it or drop lower after failing to break through. Traders bullish on ZIM stock should wait for a successful breakout above and retest of the 50 MA before taking a position. Whereas, bears can go short if the break out fails and short ZIM stock based on its bearish fundamentals.
Is ZIM Stock a Good Investment?
While in the short term, ZIM stock could continue to rally, in the long term its outlook is quite different. During the Q3 earnings call, Zim’s management team made it clear that the company is following strategic plans with a strong focus on the long-term to help Zim return to profitability.
One of these plans is returning some of its vessels. Zim is classified as a light-assets company, meaning that it doesn’t own all of its vessels, but just rents them. By the end of 2022, Zim had 150 vessels in its fleet, of which 9 were owned by the company and 141 were rented.
Some of Zim’s leases on these vessels are expiring in 2024 and 2025. As is, the company plans on not renewing them to reduce its capacity and costs thereby strengthening revenues and profitability. While this will be a slow process, with roughly 2 years before the leases expire, it’s still a move in the right direction.
Another thing management did was use the profits earned during the pandemic - around $10 billion of net income - to pay off a lot of debt. Additionally, this period of profitability led to a significant cash balance of over $3 billion in Q3. This means that the company has a healthy balance sheet and isn’t facing the risk of running out of money anytime soon.
Zim’s long-term plans also include a fleet renewal program secured through a series of charter agreements. The company invested in 46 newly built container ships, of which 28 are powered by liquified natural gas, which is natural gas that has been cooled into a liquid form and faces no risk of exploding if there is any sort of leak or spill. It is also considered a cleaner source of energy than oil and coal. This allows Zim to have a younger, more fuel and cost efficient fleet by 2025, ultimately reducing its costs and increasing its competitiveness.
In order to achieve this, Zim entered a strategic supply agreement with Shell in order to secure liquified natural gas at competitive prices. The company also bought almost $1 billion worth of containers with a particular focus on reefer propositions. According to CEO Eli Glickman, the company now owns the youngest reefer fleet in the industry, which will allow it to compete for high-value cargo.
Zim’s management has also tried to reassure investors by sharing that Israel accounts for only 10% of the company’s volume. Even though Zim isn’t stopping its operations in Israel or near it, investors will be relieved to know that 90% of the company’s business isn’t in an area of war.
ZIM Stock Forecast
When looking at Zim’s 2023 full-year guidance, we can see that the company projects an adjusted EBIT loss of $400 million to $600 million, expects a continued weakness in freight rates with no recovery from current levels, a slight decline in the company’s YoY, and higher than previously projected bunker costs.
While it’s unlikely that Zim’s new plans will help it achieve profitability anytime soon, but they could help reduce costs and return the company to efficiency and a better cash flow.
Speaking of cash flow, it’s important to note that despite losing money Zim is still achieving positive cash flow from operations, totaling $338 million in Q3. This is a good sign for the company, since its losses can be reduced after it reduces its long-term assets like the vessels, and therefore reduce non-cash expenses like depreciation.
In the income statement, you have to record non-cash expenses such as depreciation for long-term assets, but it’s not necessarily a cash outflow. So, even though Zim is losing money, it’s still generating cash inflow which is a good thing.
Overall, the company’s management team is competent and its plans to return to profitability are solid, but the company faces geopolitical risks and the impact of changing consumer behavior. The latter is still a persisting problem, one which Zim’s management admitted they had expected it to reverse sooner.
In light of these factors, ZIM stock appears to be a high risk investment, at least in the short-term. But if its management's plans come to fruition, it could see a strong recovery once consumer behavior returns to its normal balance.