Fearnley Securities believes the days of big shareholder payouts are over for Israeli line Zim. The container ship owner has lowered its full-year earnings guidance as the market continues to normalize. The New York-listed company expects to make $400m to $500m less profit than earlier projected. Fearnleys analyst Oystein Vaagen said Zim’s “dividend party” is over, downgrading the stock from “buy” to “sell.” He blamed soft freight markets, macroeconomic uncertainty, and likely “disappointments” over fourth-quarter dividends.

Freight rates held up better than expected in the third quarter at $3,600 per teu, the analyst added, but the blended Shanghai Containerized Freight Index is down 50% so far in the final three months. “Hence, we believe the lower end of [profit] guidance is a more likely scenario. With the market now moving from inflation to growth fears, Zim is one of the equities we expect to be pressured,” Vaagen said. Zim’s liquidity is now $1.3bn in cash and $1.8bn in net working capital. Fearnleys sees this dropping below $2bn. The owner has a capex of between $400m and $500m, plus $2bn of lease costs in 2023.

It declared a dividend of $354m, or $2.95 per share, representing about 30% of third-quarter net income. Vaagen sees a maintained 30% payout as more likely in the fourth quarter, implying just $0.20. A further weakening in the market could rapidly impact cash, he believes. The container ship newbuilding orderbook stands at 27% of the operational fleet. This, combined with weakening demand, is heavily pressuring rates. Fearnleys is assuming freight rates of $1,700 per teu in 2023 and a 5% drop in volumes in the fourth quarter of this year. It is projecting a fall of 2% in 2023 and 2024 as congestion continues to unwind. “With high market uncertainty, dropping rates (drastically impacts bottom line given high lease costs), we see 30% dividend payment as the prudent option,” Vaagen said. “Moreover, should markets worsen more than our assumptions, the cash position could disappear as quickly as it was gained.”