Question

In what industry sector should one place a logistics services provider such as agencies for container shipping companies.
*low on tangible assets,
*business volumes fluctuate with the economic cycles of the maritime shipping industry,
*agency business so guarding ones contribution margins is important.

Answer 1

I would start with the beta for container shipping companies (since their fortunes rest on how well these companies do) and adjust for fixed cost structure (I am not sure that having less in tangible assets translates into lower fixed costs, but if it does, you can adjust the beta down...) The contribution margin issue is a concern during valuation but not for estimating betas.

Answer 2

Dear Aswath, Thank you for responding to my question. I have one related question. The valuation models place great emphasis on future investments as driver for growth. But these companies thrive on long term macro economic developments in the relating countries leading to increasing trade volumes (for one company I found a correlation of over 90% over a 5 year period) and clients that value reliability stick to certain agents with their profitable margins meaning these companies are getting hight returns over prolonged periods. How does this fit in the valuation models?

Answer 3

Dear Aswath, please forget my last question. It is poorly phrased.