DryShips: The Time to Buy Is Now 114 comments
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DryShips (DRYS) has had problems with its credit lately. It has refused to take delivery of Capesize vessels (and has cancelled many future deliveries). DRYS has had to pay a stiff price for all of this. It has cancelled its dividend. It has, however, been able to renegotiate its credit with Bank of Piraeus (BPIRF.PK) to restructure two loan facilities totaling $220 million, with $164.9 million currently outstanding. Under the terms of the deal, outstanding repayments will be reduced by roughly 47% in 2009 and by 21% in 2010. The deal also includes a covenant waiver through Jan. 1, 2011.
DRYS has made a shelf registration to sell $500M worth of its shares purportedly to help shore up its credit situation. This will no doubt cause share value dilution. I have talked to investor relations at DRYS. They say there is no set timeline on the sale of these shares. They will inform shareholders when the shares are sold. The shares have fallen as a result from the recent $13-$15 range to their current price of approximately $6. They were as low as the high $4 range at one point. This begs the question, why buy now?
The answer is twofold. First, nothing has dramatically changed in the DRYS shipping business. It is still a great value. The ship deliveries that were cancelled were cancelled to cut back on CAPEX for the near future. This is something nearly every company is doing in these hard times. The money raised from the share sale will likely be used to retire debt (or make further acquisitions). The money from these shares is going to be used to make the company more financially stable. The BDI has been going up steadily on increased demand from China, due to its infrastructure heavy stimulus package (and a possible second infrastructure package). The imminent approval of the US stimulus package is likely exerting an indirect effect also. The BDI stands at 1642 with the capesize spot price at $30,001. It has risen consistently for the past two months.
Second, DRYS has announced that it is planning to spin off its Ocean Rig holdings as a new company by issuing shares as a dividend to its shareholders. The regular dividend has been cancelled. However, I have not heard that this dividend has been cancelled. The proposed spin off was supposed to occur in Q1 of 2009. However, I have confirmed with DRYS’ Investor Relations that the spin off has now been delayed until 2H 2009. Its format is best described by the DRYS announcement,
After we file all appropriate documents with the SEC, and once approved, we will spin-off the entity to our shareholders as a dividend. We hope to do so in the fourth quarter of 2008 or in the first quarter of 2009. This is not an IPO, as we will not raise any new equity. Simply, each shareholder in DryShips, as of the record date, will end up owning a share in DryShips and a share in the new spun-off entity, which they can then keep or sell on a U.S stock exchange, and the market will then determine the ultimate value of those shares.
At the time of the spin off announcement, DRYS made the following estimate about the likely value of the new entity’s stock.
Using several methodologies, it was estimated that the total equity value of Primelead would be between $2.55 billion and $2.80 billion, which if correct, and taking into account the 100% owned by DryShips and divided by the 63 million shares should result in a common stock price of $30 to $31 for the spun-off entity. As we showed in our recent presentation, if you assume a daily rate in excess of $675,000 per drillship, you get an EBITDA level which after applying a multiple of 5, which is the current market, you get an Enterprise Value of $900 million per drillship, or $5.4 billion for all six units. Taking out the net debt of this entity you get an equity value of about 2.7 billion. 75% of this value ($30-$31 per share) goes to the 63 million shares owned by DryShips shareholders post closing and post spin off.
DRYS itself will retain a 25% interest in Ocean Rig (according to Investor Relations at DRYS). Note that RIG trades at a 1.15 book multiple. DO trades at a price to book ratio of 2.67. NE trades at a P/B of 1.39. The Ocean Rig entity’s Price/Book ratio is likely to be higher than the average of the lower two values above.
This is a perhaps overly optimistic view of the Ocean Rig entity’s worth in the current market situation. Still, even if you cut that estimate to $10/share, DRYS would still be a great bargain. You would get the DRYS dry bulk business, which seems to be nearly the entire valuation basis for the stock at the moment ($6). Plus, you would get the Ocean Rig business entity ($10+). This is another case where the break up value of the stock is worth more than the company as one entity. The total would give you in excess of $16. Since the stock is now trading at $6, you will have made money. If oil recovers in the second half of 2009, this will make the Ocean Rig spin off entity far more valuable. If dry bulk shipping continues to improve going into the summer, the price of the DRYS dry bulk business will go up dramatically.
At this point I see tremendous upside, with much less downside. DRYS may not have gotten the new capesize ships. They may have paid off to not take them. This will likely eventually hurt growth. However, it has essentially ensured that DRYS will remain profitable in the hard times of the next year or two.
Again you raise the question, why buy now??? The answer is simply that you can rely on Mr. Economou. You can rely on Mr. Economou to be self-serving. You can rely on him to be the smart man that he is. He owns a lot of shares himself. Other interests of his also own significant shares of DRYS. How does this help you? Simply, there is no specific date on the shelf registration sale of the DRYS shares. For Mr. Economou to get the most out of his shares, he will sell as few shares of DRYS between now and the spin off date as he can. That way he will get a higher proportion of the Ocean Rig company when it is spun off. No doubt DRYS itself will retain shares in the Ocean Rig company. However, it will not issue new shares in the Ocean Rig company for any future DRYS shares it sells.
Buy now!!! Have faith in Mr. Economou!!! Have faith that he will do what is in his best interest!!! If you are waiting to see how badly the current shares get diluted by the $500M stock sale, you are likely letting a good opportunity slip by. You are going to miss out on the Ocean Rig spin off. When you buy after the stock goes up - on the spin off due to the stock in the spin off DRYS retains itself (25% according to Investor Relations at DRYS), you will have missed getting the spin off yourself. Then you will likely get hammered by further sales of DRYS shares from the $500M shelf registration. It seems likely Mr. Economou will pick that time – the time when the DRYS shares are higher priced – to sell off some of DRYS to retire some debt. Play the game with Mr. Economou. It seems much more likely to be profitable than to try to play against him. Other shippers simply do not have this coming spin off. It is a great value opportunity.
NOTE: Many worry that the day rates on these rigs have gone down recently. This is probably true. However, they are likely to go back up. There is still demand. RIG just contracted long term for 3 of its UDW rigs at $495,000/day to $537,000/day with Reliance of India. The cost to operate these rigs is only about $150,000/day. I think you can see where the profit is. The two of the UDW drill rigs DRYS has on order are costing it $800M each (I am unsure the exact cost of the other two). Even at this cost they will quickly pay for themselves at current day rates. Is DRYS carrying a lot of debt because of this? Yes, they are. Is this likely to pay off for DRYS? Yes, it is. Keep in mind that PBR has made huge discoveries in deep water off the coast of Brazil. The next frontier in the Gulf of Mexico is very deep water drilling. These, along with other deep water drilling opportunities (Indonesia, the China Sea, the North Sea, etc.), should keep the demand high for the UDW rigs. If we are not at the bottom of the recession, we are close. The deep sea oil drilling business should start to pick up toward the end of 2009.
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This article has 114 comments:
The BDI is up strongly again today to 1815. The capesize spot price is now at $34,101. The BCI is at 3344.
DRYS stock is up in pre-market trading. The technicals indicate the first strong support is at about $3.60. The first strong resistance is at $9. The stock is currently trading at approx. $7. It seems much more likely that the stock will move up to find new support at $9, especially given that the financial problems seem to have been resolved at least temporarily.
Further investors should take into account that the consistent rise in the BDI lately will likely mean that the market prices of old ships will be going up also. DRYS has one of the best price to book ratios in the industry. If the used ship prices go up, DRYS should soon have no problems with covenant violation, as these problems have largely arisen due to mark-to-market accounting rules.
ESEA - Euroseas, Ltd.
KEX - Kirby Corp.
SBLK - Star Bulk Carriers Corp.
TBSI - TBSI Intl. Ltd.
TOO - Teekay Offshore Partners L.P.
for more shipping stocks with bullish technical indicators click here:
www.synergeticstocks.c...
As I tried to point out, Mr. Economou owns some DRYS shares himself. Plus he has interests in companies that have DRYS shares. It is in his interest to make the dividend distribution of Ocean Rig (i.e. give shares in Ocean Rig to owners of DRYS shares) before he allows the DRYS shares to be diluted very much. The new agreements with the two banks DRYS was in default to should allow him to do this. Once the distribution takes place, selling DRYS shares (from the shelf registration) will not depreciate his new holdings in Ocean Rig. Therefore Mr. Economou will sell very few DRYS shares (or as few as possible) until after the dividend distribution. I also tried to point out that the dividend distribution would likely make the DRYS share value go up because DRYS is retaining 25% of the Ocean Rig stock. That stock will then have a defined value that will likely be much higher than the value Ocean Rig currently consitutes on DRYS books. Plus with the BDI going up consistently, dry bulk shipping stocks should go up generally in lock step.
For me, to go long - I need a better reason than re-figuring balance sheets.
DRYS have done a terrible job managing their business and the macro truth remains - demand for shipping and products is down down down.. will they survive? maybe. But beaten down companies with better macro prospect are a dime a dozen these days..
Nevertheless, great piece, thanks.
A week or two ago DRYS one year price target was approx. $35. Today on Yahoo it is approx. $10. In my mind DRYS is in much better financial condition today than 2-3 weeks ago. DRYS has eliminated a lot of its CAPEX for 2009. It looks much stronger financially going forward. With a good number of long term contracts, it should be able to weather the recession reasonably well. Plus the Ocean Rig distribution as a dividend is likely to net each DRYS shareholder at least $10/share. Add the likelihood that DRYS stock will go up considerably from its current position to say $20 to $40 by year end. Then you have a real opportunity to see your DRYS shares rise from about $7 now to say $40 (inlcuding the Ocean Rig distribution money). That is more than a 5-fold rise. If you only get the $10 from the Ocean Rig distribution, you still made a trade that netted you more than 100% on the year. If you use stops, you can limit your downside. I believe DRYS should be able to soon establish a support level at $9 (i.e. be consistently above $9 soon). If you then put your stops at $8, you could have made a sure profit without much risk. You could put your temporary stops at $5.50 for the moment. Then you are risking at most $1.33 to possibly gain $10 to $33 over the next year. Most people would consider this a good risk. Once DRYS goes creditably above $9, you could move your stops up to ensure that you make a profit no matter what.
If you don't believe the thesis of this article, you obviously do nto want to invest in DRYS. I do. I am invested.
Anyone who wants to wait to buy DRYS, until after earnings and a report on the selling of shares, will not miss out on the spinoff.
You want to trust George because he owns 35%of DRYS? Well he owns 100% of Cardiff, and every time DRYS cancelled a ship, he paid a very high fee to Cardiff. Most analysts, and shipping people have found the penalties and purchase options to be exorbitant.
Ocean Rig owns two of those Rigs, DRYS has two Rigs on order, and Cardiff owns the other two. To assume that George will do what's best for DRYS as opposed to Cardiff, would be a huge leap of faith, and would not be consistent with how he has acted with the ship cancellations.
I also tried to cover the mark-to-market issue in my first comment. The BDI is rising quickly. China likely is getting another stimulus package on top of the one it already has. The US is on the verge of approving a nearly $1T stimulus package, which benefits China because it exports heavily to the US. Morgan Stanley upgraded the Commodity Shipping business from "Cautious" to "In-Line" today. All this likely means that the prices for DRYS' used ships are likely to go up (probably dramatically) in the near future for mark-to-market accounting purposes. This should mean that DRYS will effectively no longer have the problem you are worrying about. It seems unlikely they will have to sell any of their ships to raise cash.
As for trusting Mr.Economou, I have only said that I trust him to do what is in his own self interest. It is in his best interest to distribute the Ocean Rig shares as a dividend before he sells much (or any) of the stock okayed by the shelf registration. That way he will end up being richer by getting a higher percentage of Ocean Rig himself. The fact that he acted in his own interest with regard to giving DRYS shares to Cardiff strengthens this arguement. It doesn't weaken it. If you can't see this, you are really too caught up in your shorting thesis. You probably need to take a step back to gain some objective insight.
An excellent analysis throughout and you clearly know DRYS very well as well as dry bulk shipping stocks generally. I am long on both DRYS and EXM and have the same faith you do (I am up nicely on EXM but my average buy-in on DRYS is $13.65 but I am not the least bit worried). When I read the SEC filing on the loan covenant defaults and the market hammered DRYS I laughed. It was a reasonable conclusion that DRYS' banks were not about to pull the plug for a few covenant breaches (ie: I practised corporate finance law in Canada, Bermuda and the UAE and covenant breaches in bad times are not only predictable, the banks simply use that as an opportunity to squeeze another small fee out of the borrower to amend the covenants and the end agreement is usually much better than prior to the covenant breaches). I think your analysis on the spin-off to DRYS shareholders is excellent - I tried to do a similar analysis (my take was the same as yours) but I couldn't access the required information. So many thanks for that analysis. The way I plan to handle things going forward is:
1. Once the spin off to DRYS shareholders takes place and the spun off shares are valued, I will take that equivalent value in cash and buy more DRYS shares (but hang on to the spun off shares).; and
2. On any serious pull back between now and the date of the spin off, I will most certainly be buying more DRYS shares (around the $6 level I feel is comfortable for my risk level).
Based on all my DRYS research over the past 4 months, I think it is safe to say you have earned the title "Mr. Dryships"!!
Bill
Also what makes you think Economou won't announce that the banks won't let him spin off the drill ship company after all? But instead will make him sell it off to raise cash? Then blame it on the banks? I can't imagine the banks letting him spin off that company. My bet is on their forcing him to sell it.
The real question is not will Economou do what is best for him, the question is what game(s) will he play next to cheat the stock holders.
On Feb 09 12:49 PM David White wrote:
> ramisle: I read the details of the new loan agreements, at least
> what appeared on line. DRYS cancelled most if not all of their new
> builds due in 2009. They agreed to not take on any more big debts
> without getting their actions okayed ahead of time. They did not
> agree to sell more of their fleet. Although they did sell one of
> their ships recently.
>
> I also tried to cover the mark-to-market issue in my first comment.
> The BDI is rising quickly. China likely is getting another stimulus
> package on top of the one it already has. The US is on the verge
> of approving a nearly $1T stimulus package, which benefits China
> because it exports heavily to the US. Morgan Stanley upgraded the
> Commodity Shipping business from "Cautious" to "In-Line" today. All
> this likely means that the prices for DRYS' used ships are likely
> to go up (probably dramatically) in the near future for mark-to-market
> accounting purposes. This should mean that DRYS will effectively
> no longer have the problem you are worrying about. It seems unlikely
> they will have to sell any of their ships to raise cash.
>
> As for trusting Mr.Economou, I have only said that I trust him to
> do what is in his own self interest. It is in his best interest to
> distribute the Ocean Rig shares as a dividend before he sells much
> (or any) of the stock okayed by the shelf registration. That way
> he will end up being richer by getting a higher percentage of Ocean
> Rig himself. The fact that he acted in his own interest with regard
> to giving DRYS shares to Cardiff strengthens this arguement. It doesn't
> weaken it. If you can't see this, you are really too caught up in
> your shorting thesis. You probably need to take a step back to gain
> some objective insight.
My money is no longer in DRYS. It is in EXM, PRGN and SB.
LOL.
On Feb 09 09:53 AM Jake Berzon wrote:
> "Have faith" are the key words here. To buy DryShips now would mean
> to take a leap of faith believing that the company will be able to
> survive this recession without filing for bankruptcy and wiping out
> current equity holders. If they can do that - good things will likely
> happen. If not - you will get wiped out and the current stock price
> reflects this risk.
On Feb 09 09:12 AM David White wrote:
> DRYS announced a preliminary agreement with Nordea Bank today for
> a covenant waiver on its $800M Primelead Facility. Assuming this
> goes through as proposed, this effectively puts at least a temporary
> end to DRYS's loan covenant breach problems. DRYS reached agreement
> with Piraeus last week.
>
> The BDI is up strongly again today to 1815. The capesize spot price
> is now at $34,101. The BCI is at 3344.
>
> DRYS stock is up in pre-market trading. The technicals indicate the
> first strong support is at about $3.60. The first strong resistance
> is at $9. The stock is currently trading at approx. $7. It seems
> much more likely that the stock will move up to find new support
> at $9, especially given that the financial problems seem to have
> been resolved at least temporarily.
>
> Further investors should take into account that the consistent rise
> in the BDI lately will likely mean that the market prices of old
> ships will be going up also. DRYS has one of the best price to book
> ratios in the industry. If the used ship prices go up, DRYS should
> soon have no problems with covenant violation, as these problems
> have largely arisen due to mark-to-market accounting rules.
On Feb 09 11:25 AM David White wrote:
> dawase: You have to go by their press releases. They can be sued
> if they are demostrably misleading. According to those, 75% of the
> Ocean Rig value will go in stock shares to the owners of DRYS shares
> at the ex-dividend date.
>
> As I tried to point out, Mr. Economou owns some DRYS shares himself.
> Plus he has interests in companies that have DRYS shares. It is in
> his interest to make the dividend distribution of Ocean Rig (i.e.
> give shares in Ocean Rig to owners of DRYS shares) before he allows
> the DRYS shares to be diluted very much. The new agreements with
> the two banks DRYS was in default to should allow him to do this.
> Once the distribution takes place, selling DRYS shares (from the
> shelf registration) will not depreciate his new holdings in Ocean
> Rig. Therefore Mr. Economou will sell very few DRYS shares (or as
> few as possible) until after the dividend distribution. I also tried
> to point out that the dividend distribution would likely make the
> DRYS share value go up because DRYS is retaining 25% of the Ocean
> Rig stock. That stock will then have a defined value that will likely
> be much higher than the value Ocean Rig currently consitutes on DRYS
> books. Plus with the BDI going up consistently, dry bulk shipping
> stocks should go up generally in lock step.
>
Part of the loan restructuring is to pay a fee and to increase the loan margin by 1%, the other part is that DRYS cannot purchase the two drill ships from Cardiff until the loan is paid down to $375 million. And a $75 million payment that is due now will be pushed back to May. You can bet Cardiff also has a cash problems and needs to keep paying installments on the two drillships that it ordered. DRYS needs cash which is why the shelf offering was put in place.
As you said, DRYS wants to spin off 6 ships as Primelead, he can't do that until DRYS owns 6 Drill ships. An alternative would be to cancel the order for the two UDW that Cardiff ordered, and forfeit the $450 million deposit. Which is how the cancelled bulkers were handled. Once again it would be good for George, bad for DRYS.
I'm not short, I think people are rolling the dice before all facts are out.
The deal that DRYS announced for selling the M/V TORO for $ 36 million to Samsun Logix, that was at a reduced price from the $63 million that the two sides agreed to last summer. DRYS was set to earn a profit of $10 m.
That deal won't go through, Samsun Logix, just went bankrupt.
You have put in lots of time in this PROMO! So can you please explain effect of following (Missing) piece from your 1st follow-up:
Following is from announcement today by NORDEA:
In addition, among other things, lender consent will be required for the acquisition of DrillShip Hulls 1837 and 1838, for new cash capital expenditures or commitments and for new acquisitions for cash until the loan has been repaid to below $375.0 million. The waiver agreement Effective Date will not exceed August 12, 2009, at which time the Company expects to be in compliance with the restructured loan covenants.
Too many people go long on this stinker thinking they'll get rich quick, when in truth, they are going to get skunked.
China is NOT surging anytime soon and without that, the DRYS story has too many plot twists to make it worth following.
If you want to go long dry bulk shipping, wait for the next huge market pullback and go long DSX - but don't buy in there now either (overbought right now).
Dry bulk shippers are going to be sucking wind all this year and If you think otherwise, you are fooling yourself.
Trade the peaks and valleys, but don't look for any bona fide rally in shipping any time soon.
PS: I've netted over $10k trading DSX shares and options in the last 10 weeks - I am walking the talk.
The Baltic Dry Index continues to rise rapidly. Something good almost must be happening in the Dry Bulk industry for it to rise at this rate. The BDI is up +159 today to 1974. The BCI (Capesize index) is up +282 to 3626. The Capesize spot price is up +$3509 to $37610. This would seem to indicate increased demand for dry bulk shipping. The current predictions are for dry bulk to increase over the course of this year (albeit slowly). This should benefit most of the dry bulk shipping stocks.
how much does dryship pays you to be a public relation and poster boy for them ?
The entire dry bulk shipping industry is down today in response to the market fear of the unknown (the US plans for its recovery). Still the BDI is up again hugely. DRYS is down with the rest of the shippers. Now is likely a good time to get in.
Mr. Lewis was on CNBC the other day stating that he believe each of the deals BofA had made recently (specifically both the Country Wide and the Merrill Lynch deals) would work out well for BofA in the long run.
Did you expect him to say anything else?
But besides dodgy management the risks here are huge and a few days of the BDI moving upward isn't going to help much - a it can easily go back down again but more importantly counter-parties to those long term charters are in a world of hurt right now. Watch for re-negotiated and cancelled charters. It makes more sense for some charteres to cancel & pay the cancellation fee than continue with rates from a supercharged bygone era.
The article is extremely well researched as are the author's replies (nothing like Dear Debra who wouldn't answer any post!) but it is pretty much like a scientific approach which rationalizes a complex situation by saying the "unthinkable" is unlikely to happen 99% of the time & then comes the black swan.
I don't think DRYS risk of bankruptcy is only 1% - it is very highly leveraged and this isn't the last capital raising that they'll need to get through the recession. They can't raise more debt so they'll either dilute shareholders further or try to sell assets at distressed prices - neither is appealing to me.
The biggest RED flag should be the related party dealings where DRYS gets the shaft compared to going market rates whether it be prices paid for ship management, prices paid for buying ships or the staggering break-up fees when DRYS doesn't have cash.
This company needs liquidity & the rights issue isn't going to be enough. Wait till those spot charters end and the first time charter gets cancelled
I have no position long or short nor do I intend to
Wish I had shorted wwhen I posted on the Debra Debacle :-)
But Cardiff (George), will get 25% of Primelead, it doesn't matter how many shares are outstanding, 25% is still 25%. No dilution for Cardiff.
There are far better Dry Bulk companies out there with less debt and better prospects than DRYS. Many people see that 52 week high for DRYS and think it's going back there. Or they think that those 6 Drill ships are a gold mine. Well you have to take a look at what Primelead will be with all the debt, being paid for by the only two rigs that are working right now, and the possibility of having 120 million shares outstanding.
Or you can just dismiss me as being short because I've looked at this company for a long time, and don't like what I see.
All else is merely opinion or fortune telling.
Good luck with that.
In this emotion driven market, it is a task to maintain the analysis of business prospects with a great number of variables unknown. I like the companies who have the track records of success anlong with the CEO who makes decisions that are all to easy to see what it is the CEO is trying to accomplish. If you find yourself using the word faith,hope, or luck in any investment discussion.......you might as well be at the horse track.
I am sorry but there is no way in heaven I believe in Mr. Economou, there has been several transactions with serious doubt as other has pointed out. Also you valuation of the 4 rigs sounds extremely high. Day rate of $675k/day you can forget about, highest day rate paid when steel were at $1000 and oil at $148 was around $625K/day. These rates has now come down significantlyas has the price of rigs.
Typical quality newbuild yards, like Daewoo and Samsung have both expanded EBITDA margins from the 0-3% range up to 10%+ levels. The reduced newbuild activity will put pressure on the yards to win new business, s will put pressure on prices. Newbuild prices were at $500m at the beginning of the cycle and peaked last summer at $700m, with current steel price and cut in E&P would mean newbuld prices to drop to $500-550m (vs your estimate of $900m) and that would indicate a dayrate of $450-460k/day hence inorder to have normal payback time of 5 years.
The drybulk rates as been artificial inflated lately by china restoring iron ore levels to normal (export out of Brazil still below average), with availability of vessels at ATH (120 vs normal 50) in the pacific, 15% of the world fleet idle and 12% supply growth in 2009 rates are heading for cash breakeven (-70% from today’s level). The drybulk sector is still a sell especially DRYS and GNK
The daily operating cost for the largest dry bulk ship, cape size ship, is about $6000 a day. Current BDI index is 1974 and the cost to lease cape size ship has risen to $37610 per day. So it's already very very profitable for shippers. At the low of Dec. 4, 2008, cape size ship costed only $2300 per day. You see how much the global shipping industry has recovered in such a short period of time.
Read this to understand the fundamental in global shipping:
stockology.blogspot.co...
The BDI has been up for 16 of the last 16 trade days. How often do you see something just keeps going up for 16 days?
Do you even know - how BDI is calculated?
Also, do you know anything about shipping business at all? Ever wondered about daily capital cost, Management salaries and perks?
en.wikipedia.org/wiki/...
I read two days ago that the cost of running a cape size ship is about $6000 to $6500 a day. Forgot to bookmark it. But based on my calculation from EXM's last available quarterly report, that number is about right. That cost includes the cost of the crew, fuel and navigation, but does not include ship armotization.
Current BDI already ensures that dry bulk shippers have become very profitable once again.
Capesize: $37610/day
Panamax: $12182/day
Supramax: $10719/day
I read an article by Bespoke today that mentioned the BDI has risen for 16 straight days now. Many of the most recent rises have been in the 8% to 15% range. This definitely indicates increasing demand! It does not indicate a dying industry.
On Feb 09 09:53 AM Jake Berzon wrote:
> "Have faith" are the key words here. To buy DryShips now would mean
> to take a leap of faith believing that the company will be able to
> survive this recession without filing for bankruptcy and wiping out
> current equity holders. If they can do that - good things will likely
> happen. If not - you will get wiped out and the current stock price
> reflects this risk.
DRYS lacks a certain transparency or trustworthiness that scares the hell out of me. Good old George laughed all the way to the bank before (at investor's expenses); he can do it again.
Of course, never ever bet the farm on this one horse (fleet of ships).
What the author has absoltely failed to look at is this: Are the interests of the major shareholder and CEO Economou aligned with the ordinary shareholders or not? the answer is a crystal clear 'no'! Economou couldn't care less whether DRYS goes bk. tomorrow. heck, he might work it over with his Greek baner-friends and at the end of the day buy DRYS' assets from them for a fraction of what they are worth!
And yes, he has that shelf filing to issue another boatload (pardon the pun) of shares to the public. I bet, it would be the last share offering you will see from DRYS. the last milking of the retail speculators who foucssed on potential returns rather than on real risks.
I urge everybody who wants to buy DRYS to read the forword and the first chapter of Graham's "intelligent investor".
drys is a gamble, plain and simple. with odds stacked deeply against the long speculators.
One would have thought that the public has been cured from gambling in the stock markets over the past 18 months. Obviously not.
I'd say, economou maximised his own returns what had to mean to minimize shareholders' returns. But as one can see from this article, a new sucker is born every minute
On Feb 10 10:14 PM Ricard wrote:
> Good analysis. That is why I am betting on DOW instead of this company.
> At least for DOW, you have good fundamentals behind an idiot CEO...DRYS
> just has the latter.
he is in fact the one judging economou's actions with much more objectivity than you. your view of DRYS' Ceo has all the features of wishful thinking, make believe and rationalization written allover it.
How many shares of drys are you underwarter with, david?
On Feb 09 12:49 PM David White wrote:
> ramisle: I read the details of the new loan agreements, at least
> what appeared on line. DRYS cancelled most if not all of their new
> builds due in 2009. They agreed to not take on any more big debts
> without getting their actions okayed ahead of time. They did not
> agree to sell more of their fleet. Although they did sell one of
> their ships recently.
>
> I also tried to cover the mark-to-market issue in my first comment.
> The BDI is rising quickly. China likely is getting another stimulus
> package on top of the one it already has. The US is on the verge
> of approving a nearly $1T stimulus package, which benefits China
> because it exports heavily to the US. Morgan Stanley upgraded the
> Commodity Shipping business from "Cautious" to "In-Line" today. All
> this likely means that the prices for DRYS' used ships are likely
> to go up (probably dramatically) in the near future for mark-to-market
> accounting purposes. This should mean that DRYS will effectively
> no longer have the problem you are worrying about. It seems unlikely
> they will have to sell any of their ships to raise cash.
>
> As for trusting Mr.Economou, I have only said that I trust him to
> do what is in his own self interest. It is in his best interest to
> distribute the Ocean Rig shares as a dividend before he sells much
> (or any) of the stock okayed by the shelf registration. That way
> he will end up being richer by getting a higher percentage of Ocean
> Rig himself. The fact that he acted in his own interest with regard
> to giving DRYS shares to Cardiff strengthens this arguement. It doesn't
> weaken it. If you can't see this, you are really too caught up in
> your shorting thesis. You probably need to take a step back to gain
> some objective insight.
would that makes it better to find American Shipping companies ? If there are any.
Is EGLE considered a better chance to benefit from the Stimuylus deal ?
The fact its registry with New York State ?
I am new in this sector, so please forgive my lack of knowledge and such
simple questions.
The BDI is up again today to 2055. The BCI is at 3822. The Capesize spot price is at $39,538. This is now 17 straight days of BDI rises. This can only be positive for DRYS and other dry bulk shippers.
Whatever your opinion of Mr. Economou (and it sounds like many of you have a very bad opinion of him), he is restricted in what he can do to a large degree by securities law. He is greedy. However, he does not want to go to jail. He does not want to lose all of his money to lawsuits. Therefore he is likely to act somewhat reasonably. I happen to agree with him that buying Ocean Rig was a good long term strategic move. It may take a little time to prove out, but I think it will. Mr. Economou is a large shareholder, so he is likely to act to enhance shareholder value. There is always the danger that he would try to buy out the company at a cheap price, but a buyout is always a possibility for any stock in the market. It is also somewhat doubtful that he could come up with the cash/credit in this type of environment. I do not think it is overly likely, but it cannot be discounted. Even a buyout by him would likely raise the stock price for the investor, so even that wouldn't be completely bad news.
From a strictly fundamental standpoint, DRYS is a better value than other shipping stocks at the moment (although not necessarily safer). Disregarding speculation about Mr. Economou's character, I invest on that basis. I also do not believe he is as big a scoundrel as some people are making him out to be. If you lost a lot of money on DRYS last year as it went down, you probably have a lot of company. However, that does not mean it cannot be a good buy at a more rock bottom price of $5+. One thing I have learned in investing is that it is important not to get stuck in one mindset too long if you wish to make a profit. Sure I was bullish when it skyrocketed. Then I became bearish on DRYS. Now I am back to being bullish. When it was at $15 earlier this year, I preferred EXM, at $5+, I now prefer DRYS. Obviously, I think I am correct in my assessment. We will have to see. It seems to me that some of you may be stuck in the bearish mode. 17 straight days of up movement in the BDI ought to tell you something. DRYS does have one of the best Price to Book ratios in the dry bulk business. Mr. Economou has proven himself to be at least an adequate CEO, if a little self serving. DRYS has been a leader in the dry bulk business over the last couple of years at least. It seems likely to continue to be. I continue to think the Ocean Rig dividend carrot is a good play.
I think BDI moving up 17 days in a row is a great sign, FXI and CAF are bottoming and moving up further strengthens the argument that China's stimulus plan is starting to make material difference.
Do you know that all DRYS capacity is 100% utilized? Meaning, all their revenue generating ships (dry or drill) are currently operating at full capacity...
I sold and then repurchase, so I am still long, but this is most likely the reason for todays drop.
Have not seen any comments from DRYS on the situation.
FFA= forward freight agreements
seekingalpha.com/artic...
On Feb 09 09:53 AM Jake Berzon wrote:
> "Have faith" are the key words here. To buy DryShips now would mean
> to take a leap of faith believing that the company will be able to
> survive this recession without filing for bankruptcy and wiping out
> current equity holders. If they can do that - good things will likely
> happen. If not - you will get wiped out and the current stock price
> reflects this risk.
However...
a bit of resarch with shine light on the fact that
1-the BDI going down was the main rationale for traders to short the stock and drive it lower and lower. The argument was EVERYWHERE. Well the BDI is definitely giving signs of early but stable recovery. Doesn't that tell you there's no reasons for the stock to stay as low as it is now. (Dividend cut ??? come one, no one has been playing DRYS as a dividend stock - it's always been about capital appreciation
2- over the last month, Barrons has published not one but two bullish articles on the company (a fundamental analysis showing the stock at 34$, albeit lower than their previous target and before dividend was cut, and a technical analysis also pointing to an uptrend. (These articles also provide a quick snapshot to get you up and running if you just became interested in this stock - albeit they were published before dividend cut and the covenant issue that's since been solved)
online.barrons.com/art...
online.barrons.com/art...
Again, a bit of research might lead to the company's website, where you will find a management presentation which rather solidly and analytically demonstrates the value of the stock given the upcoming oilrig demonstration. I might be a sucker for well-argued powerpoint slides - but in my opinion they do provide economically-sound arguments for investing.
I am long, have been very disppointed by this stock during the last year ( a stock which i considered was nothing more than a trade) and I never thought I would say this, but at the current price, with BDI going up, with covenant being waived, with likely upcoming asset value appreciation solving the covenant issue for a while, I believe this stock has become a solid fundamental value bet. Not without its risks - but these are mostly discounted in the current price. And as suggested by the author, stop losses will go a long way in mitigating your risk on this one - like on any other stock in today's environment.
Good luck .
DRYS is down today. However, in general it seems to be holding up fairly well considering the S&P500 and the DJIA are both down significantly (about 200 dow points). I take this to be a reasonably positive sign for the stock. It looks like it will head upward strongly if it does not have to fight an overall market headwind. The DJIA is below its most recent support. However, the SPY is still above a strong point. Retail sales were actually up in January, so this may bode well for a move to the upside if the stimulus package is approved soon. Of course, the overall market trend would still have to be considered downward at this point, so take reasonable risks. Longer term DRYS looks like a good buy at this point, barring further major economic collapses.
User197693 cited positive Barrons article. Phillip Davis had a positive note about DRYS in his options blog.
Morgan Stanley recently upgraded the entire Dry Buld sector.
Sure China has been having problems. However, that also means that their next stimulus package may be bigger than had been expected. It seems likely to contain further money for infrastructure. This will mean further dry bulk shipping. Plus the US stimulus package may help China to some degree.
Like forward freight agreements from the Baltic Exchange
FFA's say the BDI will be down over 100 tomorrow.
The price to book is based on companies still putting a value of $130-$160 million for a Cape, it should be under $50 m.
It's the same problem that some people are having with using the posted P/E. Yahoo, and TD are using last summers numbers. Theyll be updated after earnings.
Disclaimer, I've never shorted anything, I'd love to own Dry Bulk again, but I'll wait until after earnings. DSX looks good because of very little debt, but you want the sexy DRYS!
I have seen all sorts of figures about how much of the DRYS stock various people own. Judging from the numbers in the comments they cannot all be correct. Large strategic blocks are not considered part of the float. Yet people have claimed that Mr. Economou owns 35% of the stock. They have said each of his ex-wives owns 15% apeice. They have said Cardiff owns a lot. This is over 65% of the stock in total. TD Ameritrade lists the float as 44.1M and the shares outstanding as 63M. This data may be a little out of date. It may not include the shares recently given to Cardiff. However, I am fairly sure it is not off by anywhere near the huge figure it would have to be to support th above claims. Long term strategic holdings such as Mr. Economou's and those atributed to his ex-wives would not be included on the float. I have requested information from DRYS to clarify these issues. I will report that data, when I get it.
But...As usual history repeats itself and not even the language of the very CEO himself dished out over 4 years ago is enough warning to stay away from this dog.
“It was surreal. When someone asked why he was doing the deal, here–now, he actually said, basically, ‘Because Americans are the dumbest investors around, and there’s lots of liquidity in this market.’”
CEO Dryship, George Economou
If that isn't enough to drive you off, if you tried to sue Economou, you can't!!!!
"The prospectus for Dryships (a company Economou formed, perhaps for variety’s sake, in the Marshall Islands) is rife, in other words, with convoluted related party transactions.
Not that it isn’t up-front about them. Take the fact that Dryships has only two employees, its CEO and a CFO, and so will conduct virtually all of its operations through Cardiff, which Economou created back in 1991. It’s right there, under risk factors, on page 12. And all that a prospective shareholder had to do was flip to the top of the next page to learn, “you will have no recourse against Cardiff.”"
And more...
“Cardiff may give preferential treatment to vessels that are beneficially owned by related parties because Mr. Economou and members of his family may receive greater economic benefits.”
And more...
www.weedenco.com/welli...
Good luck sir author, you'll need it.
Sounds like DRYS is the only shipping company exists now.
Just can't believe it.
1) Accounting
2) Audit
3) Administration/Support
4) Engineering
5) Finance
6) Human Resources
7) IT
8) Project Management
How do you explain your statements based on this data? Are you claiming the entire web site is a sham?
As for whether or not the banks will let him spin off the Ocean Rig business as a dividend to the shareholders, I cannot say for sure that they will. However, a spin off would get some big loans off the DRYS books. Plus it would likely increase the book value of DRYS, since DRYS is keeping 25% of the shares in the Ocean Rig IPO. If some of the loans only then applied to Ocean Rig, the banks in that position might prefer that because the new company would have less exposure to the more volatile dry bulk market. UDW drill rigs are usually booked for long terms. Therefore they give bankers good insight into what incomes they can expect the company to generate. These charters have great margins.
I admit this is mostly speculative thinking on my part. However, there is likely a good deal of truth in that speculation.
Sure DRYS fell a lot last year. All of the dry bulk shippers did. DRYS swing was worse than some. However, it was the highest flier. It has one of the best if not the best price to book value ratios in the business. Sure there is risk there because it is more leveraged than some of the other shippers. However, there is also more potential upside. If DRYS can make it through the recession (which seems extremely likely), that price to book value ratio will mean the stock will shoot up along the way. It will far outperform many other shippers. The deep sea oil drilling business seems likely to recover more quickly than the dry bulk business. China, India, etc. will quickly be puting upward pressure on oil prices as the recession ends. I recently read that China was now the biggest new car market in the world. It will soon be guzzling gas at an unprecedented rate. The US will return to its gas guzzling ways as the recession ends also. The UDW business has not garnered the amount of competition that the dry bulk business has. DRYS with Ocean Rig should be ideally positioned to take advantage of this as the recession end. Mr. Economou's actions will then likely be lauded, even as some are criticizing them now.
All of these are up in the air at this time.
The value of the ships cannot and should not be taken from last summers earnings report. They should be cut at least in half.
The Liabilities seem to change daily.
And the number of shares is expected to go up, some think by a little, some think by a whole lot.
I don't think it is a bad thing that DRYS has two employees, but at the time of the article DRYS had two.
The DRYS website states that,
"THROUGH" Ocean Rig, a subsidiary of DRYS, and Cardiff, they have 1500 employees.
When Primelead is spun off they will again have two.
Cardiff handles all management for DRYS, but Cardiff employees are not DRYS employees.
Each shareholder will get one share of Primelead, for every DRYS share they own.
If there is no dilution, (not likely), there will be 63 million shares of Primelead, to start.
But, DRYS gets 25% and Cardiff gets 25% as payment for Drill ships that will be delivered at the end of 2010 and first Q 2011.
So 126 m. shares if there is no dilution.
How could there not be dilution? The spinoff has been pushed back .
DRYS had to put off until May, the $75 million that was due now.
"Still with me? What about the fact that Mr. Economou ran Alpha Shipping, a virtually identical vessel operator, into bankruptcy in 1999 while burning through $175 million in capital in less than a year. Or that the company has other conflicts of interest, such as when Economou used the capital raised in the DryShips IPO to buy five ships off his sister. It's no small wonder that management saw the need to make the distinction in the earnings release that it was purchasing carriers from "unaffiliated" parties for once."
Or that appears to be entirely self-serving...
"If that is not enough to convince investors to run away screaming, perhaps the fact that management issued a special dividend of $69 million to the Economou family prior to the IPO (of DRYS) -- which was essentially all of the company's retained earnings up until that point, leaving just $7 million in cash on the balance sheet -- will do the trick."
But how can I argue with the stock price? What with everything being so overvalued and the seeming lack of good deals in other investments that are so much less transparent than Dryships, I feel a fool for arguing against Mr. White, and why wouldn't I plunk my hard earned capital long in this position? Seriously, with the Dow trading at an all time high and oil at 147/barrell you really have to dig deep to find something worth looking at. Oh wait it's 2009. My bad.
Seriously, when you can spend 5 minutes on the internet pulling up question after question after question about the integrity of management and about where their loyalty truly lies, why would anyone argue it's merits? Much less argue their merits then post rebuttal after rebuttal (over 25 rebuttals from Mr. White and counting) unless they were some self-serving stock promoter? Where is the quality control Seeking Alpha? Please Mr. White, I hope Mr. Economou is paying you enough to offset your losses on your purported long postions.
BTW, source for above quotes is www.fool.com/investing...
I've had to question your research several times and corrected your claims and never called you a liar when you said repeatedly that DSX had NO Capes and 13 Pana's, or NM having 1Cape and 5 Pana's.
Or that EXM was the big dog in the Global fleet, even though COSCO controls 417 ships.
I would think by now you would not attack people who correct you, since most have better info than you.
DRYS has few employees that actually run the shipping business. It employs Cardiff (a management company) to run the shipping business for it. Cardiff has limited employees itself. However, the number of Cardiff employees is inline with the typical number for shipping company management.
I do not apologize for the comment about the article referenced by yukonmike1. It is still a dated article (2004). It was speculation and innuendo at the time it was written. Its claims that the purchase of old ships was a bad deal for DRYS have already proven to be false. Five year old speculation and innuendo does not belong in current commentary, especially if it has proven false since that time. It is no doubt part of your dump strategy to use it.
I have not yet found out the exact number of shares of DRYS everyone owns. Apparently there are now about 70.6M shares in circulation. There have been two recent shelf registrations -- one for $25M (mostly or fully used) and one for $500M (not used yet).
DRYS owns 100% of Ocean Rig. Ocean Rig has two active UDW rigs. Ocean Rig has another two UDW rigs on order. DRYS has also through Cardiff ordered 2 further UDW drill rigs. In consideration for these two UDW rigs, Cardiff will be given 20-25% of the Primelead spin off (Ocean Rig plus the two UDW rigs being supplied through Cardiff -- a total of 6 UDW rigs). I believe this is exclusive of any stock Cardiff may own. I am not sure it the exact terms of this deal have been completely finalized. DRYS will retain some portion of the spun off company (perhaps 25%). The rest will be distributed to shareholders as a dividend. It seems to me that this will still be worth quite a lot. It would seem that ramisle was correct in his statement that the 20-25% that Cardiff is supposed to get will not be diluted by further stock sales by DRYS. However, any of the $500M shelf registration that is sold before this distribution will dilute the value of the shares owned by Mr. Economou (and his family) as much as it will dilute the value of the shares owned by any other shareholder.
I have been told that DRYS plans to make their quarterly report in late February or early March. I am sure some of the delay has been due to the extra accounting work necessary for the new (preliminary) loan agreements with Nordea and Piraeus. I am sure only so much can be done at one time by a limited size accounting staff.
Again there is very little difference between a company such as DRYS which contracts with Cardiff to provide management services and any other shipping company. This seems rather a vehicle by which Mr. Economou has kept Cardiff private, while getting funds for DRYS through a public offering. DRYS still owns the ships, etc. just as any other shipping company would.
As for whether my article is a pump and dump, I think you only have to look at the attempted sale of the M/V Toro to see if DRYS is still a value. Originally DRYS contracted to sell the M/V Toro for $63.4M. This was later renegotiated since both DRYS and Samsung Logix were in need of money to a price of $36M. This seems likely to fall through. However, even with the lower renegotiated price DRYS would have made a book profit of $10M. In other words a company, Samsung Logix, which was in dire straits itself was willing to pay a price for the M/V Toro, which is substantially above the current DRYS' book price. DRYS has many other ships that are similarly underrepresented by the book values on the company books. Yet DRYS is selling at a roughly 9 to 10-fold discount to its book value. If you further consider that we are likely near the low for ship values at this point in time, DRYS ship values will likely be higher than they are currently by this time next year. Almost certainly they will be a good deal higher by 2011. While one can never comletely predict the economy, DRYS still seems like an excellent value. According to the Q3 2008 report DRYS had stockholders equity of $2,137,899,000. Today DRYS has a current market capitalization of $207.29M (Yahoo Finance). This may have changed marginally recently. However, it still represents a huge value. From the above data the price to stock holders equity is .097.
By comparison, DSX, which is much less leveraged and so less risky, had a stockholders equity of $801,740,000 at the end of Q3 2008. It currently has a market capitalization of $1.13B (Yahoo Finance). I other words it is trading at a mulitple of more than one to its book value, specifically 1.409.
This latter is greater than DRYS by a factor of 14.5. I think there is a good argument to be made that DRYS is the better buy, even give some extra risk. Mr. Economou showed good judgement last year when he shifted DRYS from the spot market largely into the long term charter market. I don't think you can really accuse him of bad management. When the world economy starts to come back, people will be wondering why they bought DSX. To accuse me of trying to foist a pump and dump scheme off on people is just another example of your clear preference for rhetoric over substance. People may be going into DSX now due to their fear. However, that does not make it the best buy. That does not make Mr. Economou a crook or a scoundrel. He seems instead to be trying to generate true value for the shareholders of which he happens to be a big one. That he has taken a riskier path than DSX would seem to be obvious.
Even if you diluted DRYS shares by 100%, it would stil be a much better value than DSX at its current price. Obviously I do not believe it is going to go under. It looks to me like the banks share this belief. Given that, it is a good buy, a much better one now than when it was at $15. Also it has recently gotten out of its major new build capesize orders. It is now much more fiscally sound, although its growth may have been stunted a little.
DRYS:
Price to Cash Flow = 0.33x
Price to Sales = 0.29x
DSX:
Price to Cash Flow = 4.77
Price to Sales = 3.73
On an equity basis DRYS is 14.5 times cheaper than DSX.
On a cash flow basis DRYS is 14.5 times cheaper than DSX.
On a sales basis DRYS is 12.9 times cheaper than DSX.
The cash flow statistic should tell you that DRYS is not really that likely to fail anytime soon. The real question is when is people's fear going to let them buy the far better bargain. Presuming for the moment that the dividend distribution does occur (i.e. Ocean Rig/Primelead), that distribution is likely to be worth at least $10/share for each DRYS share. If DRYS shares are only selling for $5 at the moment. That will be a 200% dividend. Even if no distribution occurs, it would seem to me that DRYS shares are still a relative bargain.
If Mr. Economou is the "scoundrel" you claim him to be, then you can be more assured that the spin off / dividend distribution will occur. He will be able to get more acknowledged value from the stock market for the Ocean Rig / Primelead company as a distinct entity. Further the deal with Cardiff for the two UDW drill rigs would seem to necessitate a spin off of Ocean Rig / Primelead.
Other shippers which have suspended their are: SBLK, DSX, EGLE, and GNK. (Reuters)
ramisle: I did explain that I got that information about DSX's fleet off the profile page on Yahoo Finance. It is probably not great management that they have allowed that page to become so out of date without challenging Yahoo.
Well said. I support your above comment comparing DRYS with DSX. I first heard about DSX in January, 2007. I learned about DRYS much later. I made a perfect entry into the dry bulk sector at the end of Nov., 2008 and early December, 2008. Read here:
stockology.blogspot.co...
At the time I first jump into dry bulk, I compared several shipping companies and I picked DRYS and DRYS only. Then close to mid January, 2009 I switched totally out of DRYS and into EXM. Right now I think I will keep my EXM shares but will atempt to buy as many DRYS shares as possible. The Ocean Rigs is a unique valuation of DRYS.
Second at least a good part of the reason I have been citing book value numbers is as a comparison to other dry bulk shippers. Your argument about book valuations would apply equally to those other shippers I have talked about. Therefore my comparison arguments would still hold up.
Third you do not seem to acknowledge at all that the spin off of Ocean Rig / Primelead is likely to generate value. Take for instance the VMWare spin off from EMC. EMC retained a good protion of the stock. A good portion was sold to the public to generate money for VMWare and EMC. Money was generated from the VMWare stock sale, plus EMC's stock rose dramatically itself based on its retained holdings of VMWare stock, even though it clearly now owned much less of VMWare.
Fourth I have heard no provision for any Ocean Rig / Primelead stock being offered for direct sale to the public. Perhaps DRYS or Cardiff will put some very small proportion of their shares up for sale. Otherwise this means that only the DRYS shareholders are likely to have any of the Ocean Rig / Primelead stock. If it is relatively scare in the market, the Ocean Rig / Primelead stock should go up to some degree from the scarcity effect.
I would tend to agree with your assessment of the likely number of shares (dilution effect) of Ocean Rig / Primelead. Still an IPO is rarely done for less than an $8-$10 figure, at least in the US markets. I believe Mr. Economou was estimating that the value of a share might be in the $30 range. I would tend to agree that this might be a high estimate. Still there is significant vlaue there. Even a $5 price/share would be a 100% dividend to someone who bought DRYS at $5.
As a comparison RIG has (RIG web site is the source) 18 UDW drilling rigs. It has many other rigs also, but one might ballpark estimate that the UDW rigs account for at least 25% to 50% of RIG's revenues and profits. Take the 25% figure it is likely a safely low figure. RIG has a market capitalization after it has been beaten down of $19.2B. 25% of this is about $4.8B. Since Ocean Rig / Primelead will have only 6 UDW drilling rigs, let's divided the $4.8B by 3 to get $1.6B. If you then said that there would be 160M shares of Ocean Rig / Primelead, you would arrive at a price of $10/share. Admittedly this is only ballparking the value, but it does lead one to the conclusion that there is likely good value in the Ocean Rig / Primelead spin off.
Let's use DO as a second example. It has 31 deep water drill rigs that account for 82.5% of its revenue. Since that's most of the revenue, we just ballpark the same margin throughout DO rigs. DO has a market cap of $8.81B. 82.5% of this is $7.268B. This translates into $.234B per UDW rig or $1.41B for 6 UDW rigs. This is in the same ballpark as the RIG figure above.
It seems to me there is good value in the Ocean Rig / Primelead spin off. Please don't get too caught up in the numbers. They are just ballpark figures. Yet they should be enough to convince you that there is likely value there even with a large number of shares of Ocean Rig / Primelead. Plus the Ocean Rig / Primelead UDW rigs are likely more high end than the average DO rig. Hence that estimate is likely an underestimate.
DRYS could be a great trade, I merely point out some of the misconceptions about the company, the owner, the BDI and the future of bulk. When all is said and done this could be a huge money maker.
BUT !!!
All the Dry Bulk companies have falling forward earnings projections due to the fact that there won't be a shortage of ships, in fact quite the opposite.
That was the projections before the Credit Crisis, it happened sooner than was expected. Where's the growth?
People misunderstand the effects of cancellations, there are cancellations of orders, and there are cancellations of sales. I've tried to point that out. More ships will hit the water than most people are expecting.
Don't think for a minute that the big three miners, or the Chinese steel makers, will allow again, a situation where the value of the Ore is less than the cost to transport it.
Vale is buying Capes now and has VLOC's on the way, some of you did say you were looking long term.
Book value depends on the number of shares. So far none of the other companies are talking about selling $500 million in stock. That is massive dilution, and it effects Primelead as well. So the comparison with other bulkers is not valid.
Primelead is going to be in a situation where they are trying to pay off the debt of 6 ships on the back of only two working rigs. No other Driller is trying to do that. I don;t have time to write down how much the debt costs per quarter, in relation to the earnings of the two, but you will be amazed at the costs involved with Ocean Rig expenses and Management.
I'm just repeating myself, and I've had enough, I just thought some people should be warned about what they are getting into.
I definitely hold no animosity towards George. He made me a boatload of money but I got into Dry Bulk in 2006, it was a much different time for bulk then.
And, the purchase of those Pana's, for $100 m each, made me suspicious, so I have only traded EXM and NM since. Goodbye all.
I think you should be able to see why Primelead / Ocean Rig would likely be a more valuable commodity as a its own entity than as a part of DRYS. This is presuming as ramisle points out that it is able to economically survive on its own. Once Ocean Rig / Primelead had all of its UDW rigs actually in hand, I think there is very little question that it would be economically viable. The four new builds are due for delivery beginning in late 2010 and into 2011. The actual date of the spin off may in some ways be dependent on the ability of Ocean Rig / Primelead to stand on its own.
I also like NM and EXM, if that makes you feel better. I especially like that EXM is not getting its new capesize until 2010 (and they are joint ventures).
Since that time the number of ships sold for scrap has gone up dramatically. There were a total of 3.4M dwt of sold for scrap in Nov. and Dec. 2008 alone. There were 4M dwt on all of 2008. There were only 48,000 dwt sold for scrap in Jan. - Sept. 2008. Apparently the high rate of scrapping has continued in Jan.
If you averaged Nov. and Dec., you get about 1.7M dwt scrapped per month. This is equivalent to about 10 capesize per month. I am not sure of the actual distribution of size types.
This will likely eliminate some small portion of the excess dry bulk shipping.
It looks like the dry bulk shipping trend is downward at the moment. DRYS just seems to be participating in this on a normal basis at it current price (about $4 after today). Any good news is likely to send this stock and the other dry bulk shippers up significantly. This likely accounts for the Feb. 5 call buying.
There were some comments made about ownership of the stock earlier by commenters. After checking several sources, I believe the DRYS stock is owned 35% by insiders, 30% by institutions, and 35% by the rest of us. Likely the institutions have been the big sellers. They tend to hate companies with banking problems.
Still the banking problems have been largely resolved at this point. DRYS has high expectations for profit from the Ocean Rig / Primelead spin off in the near future. The stock is already heavily shorted. The BDI up trend is still in place. Any good news could send the stock up dramatically.
In this vein, the SPY was down over $3 today (>3%). According to a Bespoke article, the President's Day week is usually an up week, although it has been a down week by 0.5% over the last ten years. Since we are already down -3% on this week after today's action, it seems likely that the rest of the week will be up. We also hit the Nov. low on the DJIA today. It seems likely we will bounce off that for the rest of the week (i.e. go up). The market might head still lower eventually, but it seems likely we will take a breather. We have had quite a run down from $87 on the SPY to $79 (that's about -10% in a week+). I am hoping for good things. We will have to see what reality brings.
I have believed for some time that the BDI was headed upward (a fair amount farther than it has gone so far). I believed that the higher BDI would then prevent this problem from occurring (at least to any appreciable extent). The fact that the problem is appearing so soon is very disturbing for the industry (and for my thesis). A continued rise in the BDI would soon re-establish the long term contract prices. It would also re-establish my thesis. If that does not occur, I may have to rethink my thesis. The whole dry bulk industry may be in for a lot of hurt without a near term rise in the BDI. China is still the big new contract generator. I think they still need to import quite a lot. We will have to see what the next week or two brings.
...Morgan Stanley
...Bank of America (on CNBC)
...that DRYS's cash crunch is not serious
...that Economou will not divert funds to Cardiff AGAIN
...that he will not use DRYS to profit private holdings AGAIN
...book value is accurate as vaguely reported
...that an offshore company would never lie in a press release (ROFLMAO! Whew- I can't breathe!)
...American consumer demand for Chinese goods will go up because of US government stimuli, although the dollar will decline against the rinmimbi, making Chinese products expensive
...and that Economou would never divert funds to himself & his nephew, while stiffing ex-wives via DRYS???
Sorry, I don't have that much faith in anything.
Commenting on your above comment. From a long term point of view chartering rate ultimately will correlate to BDI, which ultimately is a supply/demand thing.
Business contracts, and breach of such contracts, as well as legislations regarding business contracts has been in existance since the dawn of human civilization. So there is nothing new here. The society have long formed the regulation mechanism to make sure that contract breaches, even if they occur, are exceptional cases and not wide-spread. Otherwise the world commerce simply can not be conducted because it would be impossible to sign any contracts if they are allowed to be so easily broken. Why sign any contract is either party can just tear it up at will, as they wish?
This two cases of EXM's charterers not paying full rate promptly must be exceptional cases. They can not be wide-spread. There must be serious repercussions of contract breaching, both in legally, and in a business's credibility, as always the case. Was there wide-spread attempt by ship owners to break away from low contract rate and make bigger money in the spot market when the spot rate was sky-high? No!
I think these two charterers did not intentionally or willingly pay the half rate. They must have a cash liquidity problem so they were unable to pay. These payments should be considered deliquent, not a deliberate breach of the contract terms. If they intentionally break away from contracts they signed, I don't know how they are going to find any ship onwer who are willing to ship their goods if they lose their credibility like that. All the people that do business with them will start to demand that they pre-pay and the banks will refuse to lend to them. That will be the end of their businesses.
Trust and credibility is the life blood of ANY business in the world.
The biggest thing for everyone to realize is that this 'recession' wasn't nearly as bad until the media started advertising it as a recession. Just the word recession causes most people to be fearful in their spending and decrease expendetures. This only further spirals the 'recession', and then we have an actual recession. Once people realize that and return to living life 'normally' then the country and world will recover. Thankfully the media is already advertising that this recession has hit bottom, and now everyone is expecting things to begin to improve. Long story short, people perception of the economy is improving which soon enough will begin to heal the economy and drive stock prices up, even higher then the spike from november to january. Nows the time to invest to double, tripple, etc... your money!
PS No guarentees, I'm not a financial advisor, just good at investing my own money!