Stanislav Oleynikov

Fresh Valuations of Dry Bulk Shipping Companies

Mark Anthony:

I used the same assumption, calculating fleet values of all the companies, listed in the article. If EXM is undervalued, as you beleive, than other stocks must be even more overvalued.
Book values are meaningless, as they are not marked to market. The true value of a 2005 capesize vessel is same, no matter if was bought for $150 mln. in 2008 or for $60 mln in 2005. In 2009, we are close to $60 mln., agian.

I would be happy to discuss valuations of any particular type of ships. Current values in the second hand market of dry bulk vessels are the result of expected DCF based on current view on long-term sustainable freight rates. They are close to 2006 and are higher than in 2003. Distressed sales hasn't hit the market yet. Particulary all owners around the world got waivers on their loans. However, they are expected to appear next year, driving the market lower.

So, shipowners in good financial position, like DSX are going to benefit. EXM has the worst financial situation among all US listed shippers. According to the waiver deal, EXM has to divert all the generated excess cash flow toward early repayment of the debt.

Fresh Valuations of Dry Bulk Shipping Companies

Windsun33:

From the last DEF 14A filling:

Shares Beneficially Owned (1)
Name Number Percentage
Sophocles N. Zoullas (2) 569,676 1.2%
Joseph M. Cianciolo (3) 72,230 *
David B. Hiley (4) 67,896 *
Douglas P. Haensel (5) 66,230 *
Alan S. Ginsberg (6) 95,515 *
Alexis P. Zoullas (7) 21,667 *
Jon Tomasson (8) 66,230 *
Forrest E. Wylie (9) 66,230 *
Directors and Executive Officers as
a group (8 persons) 1,025,674 2.2%

So, insiders own just 2.2%

Fresh Valuations of Dry Bulk Shipping Companies

To Anthony:

Here's a link to ship by ship calculation of market fleet value for EXM:
seekingalpha.com/insta...

If you don't agree with anything in the EXM ship by ship valuation, I can explain every number and show recent comparable deals in second hand market.

The main reasons for similar fleet market values for EXM and EGLE:

1. Fleet values include ordered, but not yet delivered newbuildings. EGLE has a lot of them. Net debt is increased for the remaining payments for these newbuldings.
2.EXM has 7 vessels in the fleet which are not owned, but leased and at a rate above current market.

Fresh Valuations of Dry Bulk Shipping Companies

To Alan Young,

In my opinion, the company is worth as much as the market values its assets. At the moment, anyone with sufficient capital can form a company, buy some dry bulk ships and make an IPO that would result in ownership of stock valued several times higher than initial investment if this new company is valued in line with EXM.
It just takes some time. In 2007 and first half of 2008, such discrepancy lead to numerous IPOs of bulkers. Such companies, like SBLK, SB, PRGN, NMM and infamous DWT appeared exactly this way. If the discrepancy between the NAV and the market price of public dry bulk shipping companies stays for the next several months, such new companies will emerge again, pulling available capital away from existing stocks.

Fresh Valuations of Dry Bulk Shipping Companies

To John Cordes:

China has been importing record volumes of iron ore for the last four months. Based on already made fixtures, this trend is going to continue for the next couple of months. A lion's share of these imports came from traders hoarding ore in anticipation of higher prices. The amount of imported iron ore significantly exceeds demand from Chinese steel mills even running at full capacity. Such situation is not sustainable. Iron ore stockplies are at all time high at the moment and going to increase. Chinese government has already started to implement measures to curb speculative hoarding. Besides, as shipping rates increase, such operations become less attractive to traders.
As a result I believe iron ore shippings to China are going to decrease in not so distant future.
However, the rest of the world may start to restock iron ore supplies, as was stated in today's report of Omar Notka of Dahlman Rose, upgrading dry bulk shippers. However, I beleive that this amount is just a fraction of Chinese imports and is not going to have any significant impact on shipping rates.

Why I Prefer Excel Maritime to DryShips

Ironically, EMX has much more severe covenant violation problems than DRYS at the moment.

Dry Bulk Shipping: Recent BDI Rise Is Heartening

The only commodity that is really important for drybulk shipping, at least as far as Chinese import and capesize market are concerned, is iron ore.

Last year China imported only about 6 million tonnes of coking coal and about 36 million of power coal. It compares with more than 410 million tonnes of iron ore imports.

The amount of other commodities in dry bulk shipping routes to China is marginal.

What really important for shipping rates is supply vs. demand picture. This issue was not address in the article.

There was really significant activity in chartering ships to haul iron ore to China in the last several weeks. Over 150 spot capesize vessels are heading to China at the moment. It compares with virtually zero activity in the spot market two months ago and may easily lead to oversupply of iron ore in Chinese ports again by spring.

But even such frantic chartering activity could not significantly rise spot capsize rates above OPEX level. Current spot level of $15,684 looks decent (though it only a fraction of the rate required by overleveraged US listed bulkers like GNK, EXM, DRYS, which bought a lot of their levels at huge bubble prices, to stay afloat).
However, not a lot of currently idle capesize vessels are able to get this kind of rate at the moment. BCI index is actually determined by rates on several shipping routes. In Europe, where it is hard to find an available capesize vessel, it is possible to charter a ship for $24,096 a day in the moment. But in the Pacific, where most of the trade is actually concentrated (on Australia to China route), the spot rate is only $6,036, still below OPEX level. This is the region where most of the idle vessels are located in the moment.

Excel Maritime Carriers: Set Up To Excel

On Jan 09 03:19 PM Ricard wrote:

> How about this:
>
> I've been in tech since 2002, with the hope that it returns to 1/3
> of its 2000 valuation within 10 years - this has easily been true
> of the major tech names, and I have done quite well with this position.
>
>
> With shippers (and in my case EXM), I am looking for something similar
> - 1/3 of its high (around 20) with a 5-10% dividend within 3-5 years.
> That would justify its stock price today. Your thoughts?

In ten years, anything is possible. I just beleive, that given current situation in the dry bulk market, EXM PPS, its NAV and all the risks involved, its clearly a sell. It will be a challange for this company even to survive. I have a bearish opinion regarding dry bulk industry, but in this sector, SBLK and DSX look significantly better. SBLK has manageable debt and above the market charters that signinificantly exceed its market cap. Some of its charterers might default of course, but its really another problem inherent to all bulkers. I beleive most of them will honor obligations. DSX has very little debt, so it at least it's going to survive.
I would buy one of these companies as a long-term investment.

Excel Maritime Carriers: Set Up To Excel

www.brs-paris.com/inde...

Excel Maritime Carriers: Set Up To Excel

You are clearly putting too much hope in Chinese stimulus package. Consider that 10% of that package will be spent buying steel. That's quite a lot, in fact, even for railways, the actual number is significantly lower. The package is for 2 years, so $29 bln. will be spent on steel this year. This is about 38 mln. mt in current prices. In order to produce that amount of steel, 58 mln. mt of iron ore is required. One capesize vessel carries about 1 mln. mt of iron ore a year. So, we are talking about 58 capes to cover all needs of chinese stimulus plan. This year, about 200 newbuild capes and 17 VLOCs will hit the water. Numbers clearly don't add up.

Excel Maritime Carriers: Set Up To Excel

Dry bulk stocks are on an upswing at the moment, but there are lots of coming news that seem not to be factored in at the moment.
The most important thing is that a lot of companies, especially EXM, GNK and DRYS are in deep violation of loan covenants. The only company in the sector that solved this problem, for the time being, is EGLE. As a result of the agreement with lenders, it is now restricted from paying dividends. After this news hit the wires, the stock price of EGLE tumbled over 30%. For GNK and EXM, it's more difficult to reach such agreement, because market values of their fleets (without taking into consideration above the market charters) are actually below outstanding loans. The most difficult situation is, in my opinion, for EXM. Nordea bank, which is the lead lender of EXM, had significant losses on other bulkers, such as Britannia and more recently Armada. They could take tougher position.

Excel Maritime Carriers: Set Up To Excel

I don't predict doom and gloom for the world economy. I just beleive dry bulk bubble has popped and the business is going back to normality. A newbuilding capesize for $50 mln. is normal, but $150 mln. is a bubble valuation. Charter rates of $15000 a day for a cape is normal, but $250000 a day is an extreme case of the bubble. There was shortage of dry bulk ships to carry iron ore to China in 2007-2008, but that problem has already been addressed. A new class of ships (VLOCs) has emerged and it is going to completely cover Brazil-China route. Dry bulk fleet was renewed and dramatically expanded and new massive shipyard capacity has been developed. So, all the hopes of the chinese coming back is like hoping that internet stocks would go back to early 2000 valuations. Have a look at EXM historical prices. It was under $8 a share as recently as 2006 and under $1 a share in 2003. Since that time it made decent profit on the spike in BDI, but spent significantly more than that buying QMAR assets at bubble prices.

Excel Maritime Carriers: Set Up To Excel

FPE (for 2009) is also meaningless, because it is mainly the result of long-term charters which started at the boom time. EXM has about 60% charter coverage for 2009, has much lower coverage for 2010 and almost zero coverage for 2011. New charters will be commenced at new rates, close to breakeven on operating basis, but clearly nowhere near the rates which are required to service huge debt. PEG ratio is laughable in case of EXM and other bulkers. There's just no growth in earnings in sight for them.
Order cancellation is clearly an issue for 2010 and beyond, but not for 2009. It's just too late to cancel. Orderbook for 2009 looked huge even before worldwide recession became apparent. Imagine the size of oversupply given the slowdown.
Current uptick in the rates is quite explainable and has always been reflected in freight futures (FFA) market. It's pretty clear that shipowners are not going to charter their ships at below operating cost level. However, in case of oversupply, the rates will not be able to stay for a prolonged time at a level, significantly higher than operating costs.

The only logical way to value dry bulk shipping companies is NAV. Above or below the market charters should also taking into consideration, of course. A dry bulk shipping company is, after all, just a set of ships. It's not really different from a close end fund in this sense. Some premium or discount to NAV is warranted for superior or inferior management, but it should be reasonable anyway. I just don't understand why a long-term investor would buy EXM (and most other bulkers for that matter) right now, if he could buy a dry bulk ship instead for the price three times lower.
I've been actively trading shipping stocks for several years and currently, PPS vs NAV for some of them is at all time high. Of course, am I shorting now.
As for the momentum and technical analysis, you are probably correct. I just mean longer term timeframe.

Excel Maritime Carriers: Set Up To Excel

The author doesn't really understand fundamentals of dry bulk shipping companies. Book value is meaningless, because it is not marked to market and ship values are very volatile.
P/E and other valuation ratios, both trailing and based on analyst expectations for 2009 are also meaningless. They reflect high rates achieved during the boom in the industry in the last couple of years.
Current rates are below break even for ship owners and, due to massive newbuildings coming this year, are not expected to rise significantly.
EXM is extremely leveraged company and market value of its fleet is below debt.
Bases on NAV, EXM and other bulkers are now probably the most overvalued stocks in the US markets.