Hail Brittania Bulk: A Broken IPO That May Come Back

Jun.24.08 | About: Britannia Bulk (DWT)

Britannia Bulk Holdings, Inc. (NYSE: DWT) owns and operates a fleet of 5 ice-class bulk vessels, 8 bulk carriers, 4 ice-class tug boats, and 5 ice-class ocean-going barges.

Ice-class vessels are those that have been certified for transportation in icy conditions, which exist in the Baltic region half of each year. DWT has contracted to purchase an additional six Panamax ice-class drybulk vessels, which are scheduled to be delivered between Jun 2009 and Sep 2010. Upon delivery of these additional vessels, DWT will increase its dry weight capacity by 72% to 1.1 million and its owned fleet will consist of 28 vessels, including 19 dry bulk vessels, 11 of which will be ice-class. This expansion will allow DWT to significantly grow its revenue, and extend its leading position in ice-class service.

There are currently less than 10 ice-class Panamax dry bulk vessels less than 10 years old. Following delivery of its new-builds, DWT will own one of the largest and most modern fleets of ice-class Panamax dry bulk vessels in the world DWT generates a significant part of its revenue from the short-haul transportation of coal, fertilizers, scrap metals, iron ore, grain and other bulk cargoes from ports in the Baltic region to countries in northern and Western Europe. In addition, the company transports these bulk cargoes from the Baltic region to India, Brazil and Argentina, and across South East Asia trade routes, from India to China, and from Australia to India.

Britannia is profitable and posted Q1 revenue of $300.2 million, up 390% yr/yr. The company expects to pay a quarterly dividend of $0.28 per share, which equates to close to 9 percent at its recent share price of $12.90. The company's core focus on the Baltic market provides some protection from competition due to restrictions that allow for only ice-class ships during winter months. And, the mix of both owned and chartered boats provides a hedge in the face of an industry downturn. This IPO was led by Goldman and Banc of America with a small float of 8.3 million shares.

The IPO was price on June 18 at $15, well below its expected range of $17-19. Shares have traded down since to as low as $12.80.

Disclosure: Author holds a long position in DWT