Kenon: A Volatile Utility Company Exposed To An Uncertain Shipping Market (NYSE:KEN)

Side view of dry bulk carriers cargo ship in the sea

Miro Nenchev

Global supply chains are easing, and the world container index is falling. After a sudden pandemic spike, the cost to move goods on the high seas is in sharp retreat and does not exhibit signs of reversing. One small Utilities sector company has exposure through ZIM Integrated (ZIM) (a 21% stake) and has a majority (59% equity interest) in OPC Energy.

Drewry World Container Index Falling Sharply

Drewry World Container Index Falling Sharply

Drewry

According to Fidelity Investments, Kenon Holdings Ltd. (NYSE:KEN), through its subsidiaries, operates as an owner, developer, and operator of power generation facilities in Israel, the United States, and internationally. It operates in four segments: OPC Israel, CPV Group, ZIM, and Quantum. The company engages in the generation and supply of electricity and energy; development, construction, and management of renewable energy and conventional natural gas-fired power plants; manufacture of automobiles; and provision of container liner shipping services.

The Singapore-based $1.9 billion market cap Independent Power and Renewable Electricity Producers industry company within the Utilities sector trades at a high 27.5 trailing 12-month GAAP price-to-earnings ratio and pays a high 10.0% dividend yield, according to The Wall Street Journal.

On valuation, while the trailing P/E looks quite cheap, the firm’s 5.8 price-to-sales ratio is higher compared to its industry peers. KEN’s price-to-cash flow ratio, however, is relatively low, which is a key stat in this market environment that demands decent cash flow. Digging deeper, though, the firm has sharply positive free cash flow, which is a better vital sign for a company. S&P Global Market Intelligence reports middle-of-the-road gross margins for Kenon. Overall, I’m not convinced that the firm can generate reliable earnings, but strong free cash flow per share is positive for its dividend.

A Mixed Valuation Picture

Kenon: A Mixed Valuation Picture

S&P Global

Looking ahead, corporate event data provided by Wall Street Horizon show an unconfirmed Q3 earnings date of Wednesday, Nov. 30 BMO. There are no analyst estimates for the EPS figure.

Corporate Event Calendar

Corporate Event Calendar

Wall Street Horizon

The Technical Take

KEN has been more than cut in half from its early 2022 peak during the commodity and materials boom that took place shortly after Russia’s invasion of Ukraine. Back then, tanker shipping rates skyrocketed as nations and businesses scrambled to move goods across a messy supply chain. The bull market for freight shipping quickly evaporated, and shares of KEN dropped precipitously.

A key breakdown took place in June when the stock fell below its 200-day moving average on a gap down from above $50 to the mid-$40s. A July and August bear market rally did not even fill the said gap entirely before sellers emerged. Fast forward to today, and the stock hangs below a key spot near $37. I see lower prices ahead. Bulls should keep an eye on this one, though, as KEN did not break sharply lower after falling below the early July low which had confluence with the Q2 2021 highs and its low pullback low about a year ago. There’s overhead resistance, as seen with the volume by price indicator, up to the low $40s. Overall, technical momentum is bearish.

KEN Shares Below Key Resistance, Trending Lower With Bad Momentum

KEN: Shares Below Key Resistance, Trending Lower With Bad Momentum

Stockcharts.com

The Bottom Line

I don’t see indications of a bullish turnaround in the freight container industry. While KEN is technically a Utilities sector stock, it trades more like a shipper. Moreover, earnings are not consistent and while free cash flow is very high now, there’s uncertainty about how sustainable that is.

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