TBS International: Best Way to Play Dry Shippers

An upgrade by Oppenheimer to DryShips (DRYS) has sent that stock and the rest of the dry-bulk shippers flying. DRYS is the big daddy of the space with the most revenues of its peers. It has also had one of the highest debt-loads, which caused it to recently dilute holders through a $500MM equity offering. With the fresh new capital raised, and the recent upgrade, DRYS has been off to the races - recently trading up 26%.

The fact is the whole dry-shipper space is a good buy -- unless you believe the world is going really dark for a while. Stocks such as Eagle Bulk (EGLE), Diana (DSX), Genco (GNK), Excel Maritime (EXM), and FreeSeas (FREE) are all good values here and most pay good dividends. They've all gone through a vicious sell-off and stabilized a few months ago. Now, any hints of strength in commodities in China or India and these stocks all tick higher. (If you can't stand super-high beta stocks: avoid these.)

The big cloud hanging over the sector has been the high levels of debt these companies are carrying and whether they'd be able to renegotiate this. DRYS' ability to raise cash is a bullish sign for the sector (their debt-to-cash ratio had been 10:1 before the new slug of capital came in).

My favorite play in this space is TBS International (TBSI). It operates smaller vessels which it can move around quickly to meet customers' demand. It also has perhaps the most conservative debt-to-cash profile in its industry. The company just got out of some commitments to take on new vessels to better control its costs in the current environment.

TBSI pays no dividend, because its management reports they need to use it to better follow growth opportunities. Yet, pick any time period over the last couple of years and map TBSI's stock performance against its peers and you'll find TBSI tends to outperform. Its biggest strength, in my view, is the company's relative valuation. While its peers trade at Enterprise Value-to-EBITDA ratios in the 5s (still cheap), TBSI trades at 1.8x.

Disclosure: No positions

Comments

[kenboy:]

I don't believe ANY of the stocks you mention are actually currently paying a dividend. I think bulk shipping will recover soon, I'm in EXM myself, and I think the dividends will start to come back by the end of 2009/start of 2010 -- but right now, NONE of the stocks in your article seem to be paying a dividend.

Apr 23 07:39 AM

[Alan Young:]

Ken is right. Finding a shipping stock that is still paying dividends is like finding a needle in a haystack. (I have two that look reasonably secure, and a couple more maybe's). The search is made harder by screening programs relying on outdated reports.

Apr 23 01:15 PM

[Ryan Vanzo:]

I'm looking into TBSI as a long-term bet as well, also considering X. They will come back someday, just when......

Apr 23 07:43 PM

[Mark Anthony:]

Absolutely agree that all dry bulk shippers are good buys. But in comparing valuations I think you did not present very convincing argument. You claim that TBSI has smaller ships and can move them around more quickly to meet customer demand. Why? Why smaller ships can be moved around more quickly? I would assume that bigger ships sail faster.

I would like to look at the ratio of total fleet tonnage divided by current market capital as an important indicator of valuation. Using this indicator, EXM is definite the best valuation to buy, at 4M tons for a market capital of $0.3075B. TBSI has only 1.5M tons capacity at $0.240B market capital.

I do own TBSI. But I own much more EXM.
stockology.blogspot.co...

Apr 23 10:24 PM

[Rohan C. Pease:]

Where were you when the dividends were cut, the comments are right; don't expect the dividend to come back any time soon. I own shares of EXM myself.

Apr 24 12:23 AM

[Joe Kunkle:]

EGLE my favorite in this sector; 9 straight days of Baltic Dry Index rising after around 23 straight down days

Apr 24 06:58 AM

[altaman:]

Be careful in this sector folks. There true extent and length of the global slowdown is not yet apparent and over-capacity is huge.

Apr 24 04:07 PM

[Domino412:]

I absolutely would not buy any shippers at these levels. I think the overall market wil see a slight correction after the big run-up, and these stocks will sell-off as rapidly as they went up. Anything that can go up 10-20 % in one day will move down just as quickly.

Apr 24 10:01 PM

[elliot_mllr:]

The dividend at NMM is probably secure at least this and next year.

Apr 25 12:20 PM

[einstein p ...:]

PRGN currently yields around 5% ---- after partially cutting the dividend. It's trading around 3.5 a share. It hasn't had a big run up in comparison to many in the sector and it's very well managed.

Apr 25 01:32 PM

[svosavvy:]

einstein

I was wondering if you could tell me what the $10,284Th on the plus side cash flow reported on their 12/31/08 10Q under unusual items was? Seemed like a big jump Thanks in advance, I have been contemplating egle, but, now am giving prgn a second look here thanks.

Apr 30 12:32 PM