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Atlas Corp. 20-F Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Atlas Corp. 7.875% Series H

Filing date:

03/14/2025

TLDR:

ELI5:

Atlas Corp, a shipping company, made a lot more money this year because they have more ships. However, they also have a lot of debt and are affected by world events, so it’s important to watch how they manage their money and deal with global issues.

Accession #:

0001628280-25-012875

Published on

Analyst Summary

  • Revenue increased significantly in 2024, primarily due to the delivery of new vessels, growing by 35.1% from $1.7 billion to $2.3 billion.
  • Operating expenses increased at a slower rate than revenue, indicating improved operational efficiency; operating profit margin increased by 17.81%.
  • Interest expense remains a significant burden due to the company’s high debt levels, increasing by 72.6% to $636.1 million.
  • Vessel utilization increased from 97.4% to 99.2%, reflecting higher efficiency in vessel usage.
  • The debt-to-asset ratio increased from 58.7% to 64.3%, indicating higher leverage.
  • Gross Profit Margin increased by 2.59% to 81.67%.
  • Net Profit Margin increased by 23.49% to 29.23%.
  • Return on Assets (ROA) increased by 33.33% to 3.92%.
  • Return on Equity (ROE) increased by 50.16% to 13.71%.
  • Earnings Per Share (EPS) increased by 66.95% to $3.29.
  • Current Ratio increased by 73.02% to 1.09.
  • Quick Ratio increased by 78.33% to 1.07.
  • Cash Ratio increased by 138.89% to 0.86.
  • Debt-to-Equity Ratio increased by 19.61% to 2.44.
  • Debt-to-Assets Ratio increased by 6.25% to 0.697.
  • Interest Coverage Ratio decreased by -7.55% to 1.96.
  • Asset Turnover increased by 8.06% to 0.134.
  • Price-to-Earnings Ratio (P/E) decreased by -17.83% to 16.41.
  • Price-to-Book Ratio (P/B) increased by 23.63% to 2.25.
  • Price-to-Sales Ratio (P/S) increased by 1.48% to 4.80.
  • Enterprise Value to EBITDA (EV/EBITDA) decreased by -19.44% to 14.84.
  • Revenue Growth increased by 35.08%.
  • Net Income Growth increased by 66.82%.
  • EPS Growth increased by 66.95%.
  • Total liquidity increased significantly from $765.3 million in 2023 to $2,066.3 million in 2024, showing improved financial flexibility.
  • Vessel leasing adjusted EBITDA increased from $1,153.5 million in 2023 to $1,749.2 million in 2024, reflecting improved operational performance.

Opportunities and Risks

  • Customer Concentration: Reliance on a limited number of customers poses a significant risk.
  • Charter Rate Volatility: Fluctuations in charter rates could impact profitability.
  • Geopolitical Risks: Ongoing conflicts and trade protectionism could disrupt the shipping industry.
  • Debt Burden: High levels of debt may limit financial flexibility.
  • Chinese Law and Policy: Changes in Chinese regulations could adversely affect financing arrangements and operations.
  • Related Party Transactions: Significant transactions with related parties, particularly ONE and Fairfax, require careful scrutiny.
  • Newbuild Program: The large newbuild program represents a significant capital commitment and execution risk.
  • EU ETS: The impact of the European Union Emissions Trading Scheme (EU ETS) on operating costs needs to be closely monitored.

Potential Implications

Company Performance

  • Ability to manage debt obligations and refinance existing debt on favorable terms will be critical.
  • Diversifying the customer base to reduce reliance on a few key clients is important.
  • Strategies to mitigate the impact of ongoing conflicts and trade protectionism on the shipping industry are needed.
  • The financial impact of the EU ETS needs to be evaluated, and charter agreements should allocate the cost of emission allowances to charterers.
  • The progress of the newbuild program needs to be tracked, and financing should be secured on acceptable terms.
  • Related party transactions should be carefully analyzed to ensure they are conducted on an arm’s-length basis and are in the best interests of all shareholders.

Executive Summary

This report analyzes Atlas Corp.’s Form 20-F filing for the fiscal year ended December 31, 2024. The analysis focuses on the company’s financial performance, key risk factors, and strategic direction, particularly within its vessel leasing segment following the sale of APR Energy. Key areas of focus include revenue growth, debt management, and exposure to geopolitical risks.

Overall Assessment: The company demonstrates strong revenue growth driven by new vessel deliveries. However, significant debt levels and exposure to volatile market conditions and geopolitical risks warrant careful monitoring.

Recommendation: Maintain a neutral outlook. While revenue growth is positive, closely monitor debt management strategies, charter rates, and the impact of geopolitical events on the shipping industry. Further diversification of the customer base and mitigation of risks related to Chinese law and policy are also recommended.

Company Overview

Atlas Corp. is a global asset manager and the parent company of Seaspan. Following the sale of APR Energy, the company’s primary business is vessel leasing through Seaspan, owning and operating containerships chartered to major liner companies. The company focuses on long-term, fixed-rate time charters.

Detailed Analysis

Financial Performance

Revenue increased significantly in 2024, primarily due to the delivery of new vessels. Operating expenses also increased, but at a slower rate than revenue, indicating improved operational efficiency. Interest expense remains a significant burden due to the company’s high debt levels.

Key Ratios and Trends:

Metric 2024 2023 Change
Revenue (Millions USD) 2,300.1 1,702.8 +35.1%
Operating Expenses (Millions USD) 421.6 347.3 +21.4%
Interest Expense (Millions USD) 636.1 368.6 +72.6%
Vessel Utilization 99.2% 97.4% +1.8%
Debt-to-Asset Ratio 64.3% 58.7% +5.6%

Management’s Discussion and Analysis (MD&A)

Management highlights revenue growth and strategic acquisitions as key drivers of future performance. However, the MD&A also acknowledges significant risks related to customer concentration, charter rate volatility, and geopolitical instability. The tone is generally optimistic, but the risk disclosures are comprehensive.

Risk Factors

The filing outlines several key risk factors, including:

  • Customer Concentration: Reliance on a limited number of customers poses a significant risk.
  • Charter Rate Volatility: Fluctuations in charter rates could impact profitability.
  • Geopolitical Risks: Ongoing conflicts and trade protectionism could disrupt the shipping industry.
  • Debt Burden: High levels of debt may limit financial flexibility.
  • Chinese Law and Policy: Changes in Chinese regulations could adversely affect financing arrangements and operations.

Uncommon Metrics & Red Flags

  • Related Party Transactions: Significant transactions with related parties, particularly ONE and Fairfax, require careful scrutiny.
  • Newbuild Program: The large newbuild program represents a significant capital commitment and execution risk.
  • EU ETS: The impact of the European Union Emissions Trading Scheme (EU ETS) on operating costs needs to be closely monitored.

Conclusion & Actionable Insights

Atlas Corp. has demonstrated strong revenue growth in 2024, driven by its vessel leasing segment. However, the company faces significant challenges related to its high debt levels, customer concentration, and exposure to geopolitical risks. The sale of APR Energy simplifies the business but also removes a source of diversification.

Recommendations:

  • Monitor Debt Levels: Closely track the company’s ability to manage its debt obligations and refinance existing debt on favorable terms.
  • Diversify Customer Base: Explore opportunities to expand the customer base to reduce reliance on a few key clients.
  • Mitigate Geopolitical Risks: Develop strategies to mitigate the impact of ongoing conflicts and trade protectionism on the shipping industry.
  • Assess EU ETS Impact: Evaluate the financial impact of the EU ETS and negotiate charter agreements that allocate the cost of emission allowances to charterers.
  • Monitor Newbuild Program: Track the progress of the newbuild program and ensure that financing is secured on acceptable terms.
  • Evaluate Related Party Transactions: Carefully analyze related party transactions to ensure they are conducted on an arm’s-length basis and are in the best interests of all shareholders.

Financial Analysis of Atlas Corp.

1. Commentary

Atlas Corp. demonstrates strong revenue growth, increasing from $1.7 billion in 2023 to $2.3 billion in 2024, driven by its vessel leasing segment. Net earnings also saw a substantial increase, rising from $403 million to $672.3 million. However, the company’s high interest expense of $636.1 million significantly impacts profitability, despite a gain on derivative instruments. The company’s total liquidity position remains robust, with $2.07 billion in cash and undrawn credit facilities.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Metric: ($2,300.1 – $421.6) / $2,300.1 = 81.67%
    • Trend: ($1,702.8 – $347.3) / $1,702.8 = 79.61%. Percentage change: (81.67 – 79.61) / 79.61 = 2.59% increase.
    • Industry: The container shipping industry typically has gross profit margins ranging from 20% to 40%. Atlas Corp.’s margin is significantly higher, likely due to its leasing model.
  • Operating Profit Margin:

    • Metric: $1,244.5 / $2,300.1 = 54.11%
    • Trend: $782.1 / $1,702.8 = 45.93%. Percentage change: (54.11 – 45.93) / 45.93 = 17.81% increase.
    • Industry: A good operating margin for the industry is between 10% and 20%. Atlas Corp.’s operating margin is very high, indicating efficient operations before considering interest and taxes.
  • Net Profit Margin:

    • Metric: $672.3 / $2,300.1 = 29.23%
    • Trend: $403.0 / $1,702.8 = 23.67%. Percentage change: (29.23 – 23.67) / 23.67 = 23.49% increase.
    • Industry: The average net profit margin for the industry is around 5% to 10%. Atlas Corp.’s net profit margin is substantially higher, reflecting strong profitability.
  • Return on Assets (ROA):

    • Metric: $672.3 / $17,158.2 = 3.92%
    • Trend: $403.0 / $13,713.0 = 2.94%. Percentage change: (3.92 – 2.94) / 2.94 = 33.33% increase.
    • Industry: The industry average ROA is typically between 2% and 5%. Atlas Corp.’s ROA is within this range and shows improvement.
  • Return on Equity (ROE):

    • Metric: $672.3 / $4,903.6 = 13.71%
    • Trend: $403.0 / $4,415.9 = 9.13%. Percentage change: (13.71 – 9.13) / 9.13 = 50.16% increase.
    • Industry: An ROE of 10% or higher is generally considered good. Atlas Corp.’s ROE exceeds this benchmark, indicating effective use of equity to generate profits.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Metric: Assuming no change in shares outstanding, EPS = $672.3 / 204.328 = $3.29
    • Trend: Assuming no change in shares outstanding, EPS = $403.0 / 204.328 = $1.97. Percentage change: (3.29 – 1.97) / 1.97 = 66.95% increase.
    • Industry: EPS varies widely. A positive and growing EPS is a good sign.

Liquidity

  • Current Ratio:

    • Metric: $1,736.7 / $1,593.7 = 1.09
    • Trend: $682.4 / $1,083.8 = 0.63. Percentage change: (1.09 – 0.63) / 0.63 = 73.02% increase.
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. Atlas Corp.’s current ratio is below this range, but has improved significantly.
  • Quick Ratio (Acid-Test Ratio):

    • Metric: ($1,736.7 – $35.2) / $1,593.7 = 1.07
    • Trend: ($682.4 – $29.2) / $1,083.8 = 0.60. Percentage change: (1.07 – 0.60) / 0.60 = 78.33% increase.
    • Industry: A quick ratio of 1.0 or greater is preferred. Atlas Corp.’s quick ratio is close to 1, indicating reasonable short-term liquidity.
  • Cash Ratio:

    • Metric: $1,366.3 / $1,593.7 = 0.86
    • Trend: $385.3 / $1,083.8 = 0.36. Percentage change: (0.86 – 0.36) / 0.36 = 138.89% increase.
    • Industry: A cash ratio of 0.5 or higher is considered good. Atlas Corp.’s cash ratio is strong, indicating a good ability to cover short-term liabilities with cash and cash equivalents.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Metric: $11,957.7 / $4,903.6 = 2.44
    • Trend: $9,000.2 / $4,415.9 = 2.04. Percentage change: (2.44 – 2.04) / 2.04 = 19.61% increase.
    • Industry: A debt-to-equity ratio of 1.5 or lower is often preferred. Atlas Corp.’s ratio is higher, indicating significant leverage.
  • Debt-to-Assets Ratio:

    • Metric: $11,957.7 / $17,158.2 = 0.697
    • Trend: $9,000.2 / $13,713.0 = 0.656. Percentage change: (0.697 – 0.656) / 0.656 = 6.25% increase.
    • Industry: A debt-to-assets ratio below 0.5 is generally considered good. Atlas Corp.’s ratio is above this level, reflecting a reliance on debt financing.
  • Interest Coverage Ratio (Times Interest Earned):

    • Metric: $1,244.5 / $636.1 = 1.96
    • Trend: $782.1 / $368.6 = 2.12. Percentage change: (1.96 – 2.12) / 2.12 = -7.55% decrease.
    • Industry: A ratio of 1.5 or greater is typically desired. Atlas Corp.’s ratio is slightly above this, but has decreased, indicating a reduced ability to cover interest expenses with operating income.

Activity/Efficiency

  • Asset Turnover:

    • Metric: $2,300.1 / $17,158.2 = 0.134
    • Trend: $1,702.8 / $13,713.0 = 0.124. Percentage change: (0.134 – 0.124) / 0.124 = 8.06% increase.
    • Industry: The asset turnover ratio varies. Atlas Corp.’s ratio is relatively low, indicating that it is not generating a high level of revenue for each dollar of assets.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Metric: Assuming a market cap of $11.0353 billion (borrowings) / $672.3 million net earnings = 16.41
    • Trend: Assuming a market cap of $8.0467 billion (borrowings) / $403.0 million net earnings = 19.97. Percentage change: (16.41 – 19.97) / 19.97 = -17.83% decrease.
    • Industry: The average P/E ratio for the industry is between 10 and 20. Atlas Corp.’s P/E ratio is within this range.
  • Price-to-Book Ratio (P/B):

    • Metric: Assuming a market cap of $11.0353 billion (borrowings) / $4,903.6 million shareholders’ equity = 2.25
    • Trend: Assuming a market cap of $8.0467 billion (borrowings) / $4,415.9 million shareholders’ equity = 1.82. Percentage change: (2.25 – 1.82) / 1.82 = 23.63% increase.
    • Industry: A P/B ratio between 1 and 3 is considered reasonable. Atlas Corp.’s P/B ratio is within this range.
  • Price-to-Sales Ratio (P/S):

    • Metric: Assuming a market cap of $11.0353 billion (borrowings) / $2,300.1 million revenue = 4.80
    • Trend: Assuming a market cap of $8.0467 billion (borrowings) / $1,702.8 million revenue = 4.73. Percentage change: (4.80 – 4.73) / 4.73 = 1.48% increase.
    • Industry: A P/S ratio below 1 is generally considered good. Atlas Corp.’s P/S ratio is higher, indicating that investors are paying more for each dollar of sales.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Metric: EV = $11,035.3 (borrowings) + $17,158.2 (total assets) – $1,366.3 (cash) = $26,827.2 million. EBITDA = $664.1 (net earnings from continuing operations before income tax) + $636.1 (interest expense) + $508.0 (depreciation and amortization) = $1,808.2 million. EV/EBITDA = $26,827.2 / $1,808.2 = 14.84
    • Trend: EV = $8,046.7 (borrowings) + $13,713.0 (total assets) – $385.3 (cash) = $21,374.4 million. EBITDA = $416.5 (net earnings from continuing operations before income tax) + $368.6 (interest expense) + $375.1 (depreciation and amortization) = $1,160.2 million. EV/EBITDA = $21,374.4 / $1,160.2 = 18.42. Percentage change: (14.84 – 18.42) / 18.42 = -19.44% decrease.
    • Industry: An EV/EBITDA multiple between 10 and 15 is considered reasonable. Atlas Corp.’s EV/EBITDA is within this range.

Growth Rates

  • Revenue Growth:

    • Metric: ($2,300.1 – $1,702.8) / $1,702.8 = 35.08%
    • Industry: This is a strong growth rate, indicating successful expansion or increased demand.
  • Net Income Growth:

    • Metric: ($672.3 – $403.0) / $403.0 = 66.82%
    • Industry: This is a very high growth rate, reflecting improved profitability.
  • EPS Growth:

    • Metric: ($3.29 – $1.97) / $1.97 = 66.95%
    • Industry: This is a very high growth rate, reflecting improved profitability.

Other Relevant Metrics

  • Vessel Utilization: Vessel utilization increased from 97.4% in 2023 to 99.2% in 2024, indicating higher efficiency in vessel usage.
  • Total Liquidity: Total liquidity increased significantly from $765.3 million in 2023 to $2,066.3 million in 2024, showing improved financial flexibility.
  • Operating Borrowings: Operating borrowings increased from $6,731.7 million in 2023 to $10,429.9 million in 2024, indicating increased debt financing.
  • Adjusted EBITDA: Vessel leasing adjusted EBITDA increased from $1,153.5 million in 2023 to $1,749.2 million in 2024, reflecting improved operational performance.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️