Dryship's Transformational CEO 28 comments
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When I first wrote about Dryships (DRYS), the largest publicly traded dry bulk shipping stock in the world, it was sitting at 65 back in February of this year. I wrote it was the most undervalued stock in the market. It had a PE of 3 or 4, 658% earnings growth, and an extraordinary ROE. The stock just sat there. I wrote article after article about DRYS highlighting the rising Baltic Dry Index, DRYS’s exposure to the strong spot market, the increasing value of its fleet, its entry into ultra deep oil drilling. I delivered a challenge to the investment community to find a company with a better PE and growth story.
That challenge has gone unanswered. Since then the stock has gone from 65 to 116, as the investment community warmed (sizzled) to this fabulous company. This last week the stock has plunged to 90 right after delivering another knock your socks off quarter. I am again challenging investors to find another stock with more compelling stats.
DRYS still represents the most underpriced and exciting company out there: fPE consensus of 5 (Reuter’s) with yoy quarterly earnings up over 400%. This last quarter the company’s earned income was $4.61. Taking away the money gained from the sale of a vessel, they earned $4.13. The Street expected $4.05. Last year, DRYS made $1.91. When you take away the benefit of vessels sold that quarter, DRYS had $1.00. In other words, DRYS went from $1.00 to $4.13 year over year, or a 413% gain. Again, excluding the benefit of the gain in ship sale this quarter, DRYS’s operating margin was 84%; if you include the vessel sale, the margin hits an unbelievable 94%.
But I’ve chosen to write this article not only to point to DRYS’s continued sensational numbers, but to highlight yet another reason the stock must be bought: its transformational and brilliant CEO, George Economou. The guy gets dumped on everywhere you look; he’s been called manipulative, deceitful, arrogant, foolhardy, not having shareholders’ interests at heart. And time again, he proves that he is the foremost shipping CEO out there. Why?
First, he has grown this company from 6 old (average 19 years) tired vessels in 2005 to a modern young (average 8 years) dynamic 48 vessel fleet.
Second, when few shippers were going spot because they were worried about risk, he left the vast majority of his vessels unfixed. He was castigated for this by investors. Everyone else was going to long term charters. Now, he looks like a genius. The Baltic Dry Index has risen from 5300 in January to over 11500 in May. Recently BHP contracted a cape for $302,000 a day; a year ago, the price for this type of vessel was $100,000.
In his last conference call, he announced that he fixed 14 of his Capes and Panamaxes at an average of 5 years, taking advantage of the extremely attractive long term rates (guaranteeing a revenue stream of $250 million with these boats alone). Talk about market timing his charters. He’s locked in prices at the high, giving an extraordinary steady stream of future income.
Third, he is a visionary. He took his experience in drybulk shipping in which he leases marine vessels at high rates of return and saw another great opportunity in a similar industry: ultra deep oil drilling. As a result, he is buying Ocean Rig with its two drill ships (ships like these are currently super sought after getting as much as $600,000 a day in revenues) as well as having ordered two drill ships to be built. The plan is to spin off these 4 drill ships (plus maybe 2 more) as a publicly company. So now, you can own a drybulking company with the likely spinning off of a valuable pure play deep water driller in a year or two (think Seadrill (SDRLF.PK), Transocean (RIG), Atwood Oceanics (ATW)). Now that’s innovative, gutsy, creative, genius. Only 3 ultra deep ships are available for hire in the next 20 months and one of them will be part of DRYS.
So beyond the low PE and the amazing earnings and revenue growth, there is their super charged CEO George Economou, a man who will become the next Aristotle Onassis and who will create the greatest shipping company on the planet.
Disclosure: Author has a long position in DRYS
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This article has 28 comments:
The necessity [?] is probably generated to obtain reasonable financing terms for the build-out of two (maybe more) drill ships.
And, don't forget the insuring costs for those.
Disclosure: Also long DRYS, GNK & NAT
What's been missing through the cycles and years (DRYS ipo was only in 2005) for shipping companies, public and private, is stability and students of the super-cycle know this. So, I agree that DRYS will be around for a while, and it will get bigger, I don't agree that it will continue to grow at exponential clips in perpetuity, as seems to be implied by the original post.
The rig biz, like shipping, requires huge capital, and ultimately cash flow based security (ie long term charters) will be attractive to lenders or bond buyers (let's not go there!!!) rather than purely asset based.
DRYS fell for the wrong reasons, and its going up for right reasons. Simple as that.
DRYS fell for the wrong reasons, and its going up for right reasons. Simple as that.
DRYS has started to contract for rates, and in relation to the other shippers is undervalued. Whether the BDI goes up or down from here is anyone's guess.
DRYS has started to contract for rates, and in relation to the other shippers is undervalued. Whether the BDI goes up or down from here is anyone's guess.
I had posted some economou-critical remarks but they have been deleted within a few hours after posting!
though they were neither offensive nor false nor in any way formulated in unacceptable language.
any explanation by the SA-team?
Another factor one should consider is the dizzying increase in bunker oil prices. Bunker oil is the fuel these ships use and can account up to 50% of operating costs. Bunker prices in 2004 was about $175, it is now about $575. Higher transportation costs will surely have an affect on global demand and regardless of who incurs the cost; the end result will be the same, higher global inflation. The BDI is at ridiculous (not sustainable) levels and will most likely come down, as well as most shipping stocks.
Another reason for a big sell off is DRYS performance over the last few days. Also keep in mind, its all hypothetical that it may carry the same momentum that EFUT had, its possible that was the biggest move this stock will have for months.
to wit
issuing himself 1.0 shares of free stock
leasing 1/2 billion dollars in ships at bargain rates
aren't there better ethical companies out there??
He transforms Drys shareholder equity to his own personal gain.
To wit:
1.Issued himself ONE MILLION SHARES WORTH 90 m dollars.
2. His private company TOOK drys ships on period charters at rates that are a fraction of current spot rates.
3. Dumped his drillships report purchased for 1.3 b to drys for a cost of 1.6 m
4. Use DRYS as his personal piggy bank to over pay for Ocean Rig.
5. Sold his personal shares of Ocean Rig to DRYS shareholders
He reportly said US investors are stupid and the world's dumbest investors. i have to agree. They put up with self serving deals that have transformed drys into his personal money making machine.
a REAL transformer man!
1. 1998- Raised 175 M in junk bonds for Alpha Shipping. Defaults on the bonds. Strikes up a deal to pay back 37 cents on the dollar and gets to keep most of his fleet.
2. Cardiff, his private company, is owned by: his sister at 30%, and he owns the rest at 70%.
3. His sister, with the initial offerings from DRYS, “purchased” 6 boats for Cardiff, which was then purchased by DRYS. She gets 3 Mill for her troubles.
4. Economou’s nephew (sister’s son) is the founder and largest shareholder of OCNF who recently misstated earnings by a mere 36% (it happens to the best of us), then bought its first two tankers privately from Economou. But this purchase by OCNF was approved by the huge board of 5, which includes his daddy. The CFO quits.
5. Currently, there are two employees of DRYS. Economou and his “internal auditor”. His CFO quit. Does anybody wonder about the legitimacy of their earnings?
6. Cardiff manages DRYS fleet, and they (I mean him and his sister) get 7 Million a year.
7. Page 12 of DRYS prospectus: “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.” He is quoted as saying he can do anything in capital markets as long as it is disclosed.
I’m not saying dry bulk is a bad sector to be invested in, but let’s not pretend Economou is “a man who will become the next Aristotle Onassis and who will create the greatest shipping company on the planet”. He is only interested in himself and his family, not his shareholders. And if you ask me, DRYS is being used as bridge financing so he can get into drilling.
GE, even on his conference calls comes across as confrontational, cocky, and unprofessional. I'm suprised that his own greed hasn't taught him to curb that sort of behavior. I'm sure that he has been told that it is his attitude and persona which is the reason that DRYS sells at a discount to it's peers.