Hi everyone,
I'm currently interviewing for an IB role and have been told I will be given a modeling test related to a shipping company. I will have to model out the forecasts and flow the effects through the three income statements. I was also told I will need to calculate an IRR on the business. I am assuming its going to be an LBO type test based on that statement. Can anyone give me some guidance / direction on how to best prepare. I do modeling daily in my job but its mostly discounted cash flows and market multiples. I've done a few LBO's but need to brush up there but just more concerned about the shipping company aspect / nuances. Thanks in advance!!
I think the "special" thing for the shipping company is that you need to go quite in depth into Capex. Building and maintaining ships is extremely costly and takes time. So you can't just assume a revenue growth if your ships are already running on full capacity.
Furthermore use shipping industry metrics. I would use P/B ratio and NAV and maybe something as EV/total load capacity. I assume you already thought about this as you use multiple on a daily basis, but don't use EBITDA as metric due to the difference in owning and leasing the ships.
Yes totally agree - so it would make the most sense to say I have 4 ships in years 1-3 and as they fill up on capacity / utilization I would then add another ship - so larger capex outlay in that year and then a step up in the depreciation as well as the maintenance capex? It makes sense in my mind to think about it that way but since this is so niche I wanted to get additional opinions.
I think industry-wide NAV is the correct way to look at shipping companies - I do like your thought on EV/total load capacity similar to an mmboed metric for oil industry.
I was also told IRR would be looked at in the model - but I cant wrap my head around how they would test that - maybe IRR of a specific ship being added to the fleet?
Well you can do 3 things regarding the ships: - Order a new one, but this will take a few years (so order it in year 1 to get it in year 4 or so) - Buy a used/recently finished ship. The problem though is that (like in the airline industry) the price of a recently finished or used ship is higher than ordering a new one as you don't have to wait. - Lease a ship. I think this is the best way to go if you get an LBO case as you don't want to spend too much cash on capex.
I think the IRR is just "What would our IRR be if we sold the company after 5 years?". So I think they want you to have a debt payment schedule and see what the IRR's are.
What's your opinion on who would pay the maintenance capex on the ship - leasee or leasor? Obviously would have an impact on my models.
I think you should try to find out what is common in the industry, but I don't think it really matters. Either you pay the maintenance, but have a low rent payment OR the leasor pays for it, but increases the rent.
Either way you end up paying for it.
Just go download a research model of a shipping company. They just want to see how you think about the business. The model varies depending on type of shipping company. IE dry bulk vs. container vs. tanker
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