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Wednesday, May 20, 2009

Fresh Valuations of Dry Bulk Shipping Companies

Wednesday, 20 May 2009

Stocks of dry bulk shipping companies had a huge run up recently. How expensive have they become from fundamental perspective? Below is a table with key parameters for some of the most actively traded pure-play companies in this segment.
Fleet values include ordered newbuilt vessels. Net debt was calculated as the difference between liabilities and assets, excluding book value of the fleet and advances for new vessels. Non-cash accounting items, such as the value of above and below the market charters, fair value of interest rate swaps and other similar records were also excluded from assets and liabilities. The debt was increased by the amount of the remaining payments under the contracts to acquire new vessels.
The data for GNK, EGLE and DSX are based on the Q1/09 quarterly report, while for EXM and SBLK on the annual 2008 report. However, market values for vessels and above the markets charters were adjusted to include expected cash flow for the quarter. So, the market value for a 2005 supramax is assumed a little higher for EXM than for EGLE.
As can be seen from the table, most dry bulk companies trade at a significant premium to NAV. A notable exception is Star Bulk Carriers Corp. However, a great deal of its fortunes are tied to profitable long-term charters it signed last year. Apparently, investors are very worried about counterparty risks. Nonetheless, SBLK looks like the most attractively valued company in dry-bulk segment.
The most overvalued company has surprisingly become EXM. Even GNK, which historically had premium valuation due to supposedly good corporate governance, is left far behind.
The most obvious reason is confusion with recent equity infusion. Excel Maritime sold 25.7 mln. shares for $1.75 per share. Also, the seller, who is, by chance, the chairman of the board, got 5.5 mln. warrants with an exercise price of $3.50 per warrant, free. As a result, the number of shares outstanding increased by almost 60%. It looks like EXM's stock price has not adjusted to this new number yet.
What lies ahead for the dry bulk shipping industry? I believe that the prospects are bleak. Huge orderbook is going to keep the rates quite low for several years. This issue is debatable, however. What is quite clear is that some companies in this sector are overvalued in comparison to others. Such discrepancies usually disappear over time.
Source: Seeking Alpha