ZIM Went Public, Stock Might Underwhelm Like Its IPO

ZIM is an integrated shipping services company that handles international cargo. The Israeli company has an asset-light model and operates in select trades where it has a competitive advantage. The company was established in 1945 by the Jewish Agency, Histadrut Labor Federation, and the Israel Maritime League. The name ZIM comes from a passage in the Bible in which the Hebrew word "Zim" refers to a number of large vessels.

As of Jan. 19, ZIM operated a fleet of 96 vessels. Only one vessel is owned by the company, while the rest are chartered-in. What was ZIM's IPO date and price? 

ZIM completed its IPO on Jan. 28. The company raised $218 million by selling 14.5 million shares at $15 per share. The stock started trading on the NYSE under the ticker symbol "ZIM" on Jan. 28. ZIM's IPO was an underwhelming event. The stock was priced below the anticipated range of $16–$19, which the company announced last week. Also, ZIM had to reduce the size of the offering to 14.5 million shares from 17.5 million shares planned earlier. According to the preliminary reports, ZIM hoped to raise between $300 million and $500 million from the IPO. 

The IPO values the company at $1.75 billion. The Maritime Executive reported that the valuation was above the $1.5 billion cited by analysts, but below the $1.9 billion–$2.3 billion targeted by the underwriters. 

ZIM has improved its financials under current CEO Eli Glickman. According to the preliminary estimates for ZIM's fourth-quarter results, the company will likely generate a net income of $500 million–$525 million. The amount is a significant improvement compared to a loss of $13 million in 2019. Overall, 2020 was a good year for container shipping companies. The freight rates rose by about 17 percent–18 percent YoY. 

ZIM wanted to take advantage of the record-breaking Trans-Pacific container freight market boom and decided to file for an IPO. However, the lack of excitement around ZIM’s IPO and the scaled-back offering and pricing implies a lackluster investor demand. There hasn't been a successful shipping IPO in the U.S. market since 2015. Unfortunately, ZIM hasn't been able to break that losing streak. 

While ZIM is touted as a direct play on the booming Trans-Pacific freight market, there's a downside with the company. One of ZIM's big advantages could become its handicap as well. Since the company leases most of its vessels and the lease duration is usually less than one year, the leases get reset often. With increasing freight rates, this doesn’t bode too well for the company's profitability. 

Also, ZIM has a very big debt load. The company has estimated its debt as of December 31, 2020, to be between $1.847 billion and $1.912 billion. The amount is an increase of 13 percent–16 percent from the end of 2019. The increase is mainly due to an increase in lease liabilities as charter rates keep expanding. 

Another factor investors need to be aware of regarding ZIM is the special share the Israeli government holds in the company. The special share could mean various restrictions and interventions by the government. 

Due to the above-mentioned factors, ZIM stock will likely underwhelm investors just like its IPO did. Therefore, investors should avoid this shipping IPO for now.