Kenon Holdings(KEN) seekingalpha.com·2024-05-16 11:35Core Viewpoint - Kenon Holdings Ltd., a significant shareholder in ZIM Integrated Shipping Services Ltd., presents an interesting investment opportunity due to its exposure to ZIM and its stable utility business through OPC Energy Ltd. [1] Group 1: Kenon Holdings Overview - Kenon Holdings owns a 21% stake in ZIM, a company that has seen its stock price nearly double recently [1] - Kenon's portfolio primarily consists of ZIM and a 55% majority interest in OPC Energy, a utility company [2][4] Group 2: ZIM Integrated Shipping Services - ZIM's business model is highly volatile due to its significant exposure to the spot market, which leads to disproportionate profits during high shipping rates and losses during low rates [2] - Recent disruptions in the Red Sea, caused by the Houthi militia, have resulted in high shipping rates, benefiting ZIM [2] - ZIM has a dividend policy of distributing 30% to 50% of net income, which means Kenon receives substantial cash distributions as long as ZIM remains profitable [3] Group 3: OPC Energy Ltd. - OPC Energy has a generation capacity of approximately 1300 MW in Israel and operates 278 MW of wind and solar capacity in the US [4][5] - For FY2023, OPC reported net profits of 304 million, and revenues of 3.8 per share, yielding over 15% based on the share price at the time [7] - As of March 26, Kenon had approximately 200 million reducing this amount [8] Group 5: Risks and Considerations - The primary risk for Kenon is tied to the performance of its portfolio companies, particularly ZIM, which faces high volatility and potential losses [9] - OPC Energy has outstanding debts of 278 million, indicating some financial risk [11] - Geopolitical risks exist for both ZIM and OPC, particularly related to operations in Israel and potential boycotts [10][12] Group 6: Investment Thesis - Kenon is considered attractively valued, with potential for the stock price to increase by at least 50% if dividends are maintained or increased [13]