Investing.com -- BCA Research analysts weighed in on BlackRock’s acquisition of two Panama Canal ports, raising important questions about whether the deal, valued at a lower-than-expected multiple, represents a true bargain given the potential geopolitical risks.
The Panama Canal is a vital shipping route with unmatched maritime traffic, surpassing major US ports in terms of container traffic.
According to BCA, “if Panama Canal ports were in the US, they would rank the largest in terms of loaded TEU (Twenty-Foot Equivalent Unit) container traffic,” surpassing major ports like Los Angeles and New York/New Jersey by significant margins.
However, despite their strategic importance, BCA notes that the “relatively low entry valuation” for these ports seems inconsistent with their value.
BCA highlights the potential risks, including the uncertainty surrounding global trade, particularly with the US and China, which accounts for 56% of the canal’s traffic.
“If US-China trade relations improve, it is good for the Panama Canal,” but BCA says trade fluctuations have impacted port traffic in the past, such as the 11% drop in US imports from Asia from 2018 to 2020, a trend that could continue.
The report also points to the struggles of CK Hutchison, the previous owner, whose “stock price significantly lagged” and faced volatile revenue and rising costs, making the sale of Panama Canal assets an attractive option.
Geopolitical pressures also played a role, with “China and Hong Kong hold[ing] significant stakes in major ports worldwide,” and growing tensions contributing to the decision to sell these assets.
While the deal seems attractive to private equity investors due to the low entry price and strategic location, BCA is cautious of the potential risks.