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ULTRAPETROL (ULTR) Grossly Undervalued Shipping Stock

|Includes:Ultrapetrol (Bahamas) Limited (ULTR)

Being a shareholder in ULTRAPETROL is not an easy job. the stock has ranged from 5 usd in july 2011, down to 0,70 in aug.2012, and all the time, prospects for the company remained good, businessplan was fine and large investors kept their positions intact. Nevertheless only after the equity fund Southern Cross poured in 220.million usd against 110.million new shares at 2 usd p/share, the stock started to recover till today usd 2,50/ 2,60 .

this price however, is still a far cry from the companies true value and it s for good reason that SC poured in such a lot of money at a reasonable modest price per share.

one needs to consider, that the company operates in a niche- shipping market, in countries where flag-protection is still a strong asset for those who have ships under Argentina/Brazilian flag, which is the case for ULTR. Such protection guarantees higher freight income, and to a certain degree also higher running expenses, but the end of the math is far better then if the ships would be operated on the worldmarket.

2ndly, the company has an enormous fleet of ships. It operates 580 drycargo barges of about 2000 mt dwat each, plus 77 tank barges of abt 2500 m3 cap. plus 33 pushtugs of abt 4000 BHP, which are being re-engined so they can operate on cheaper fuel. this enormous river-fleet gives the company a near-monopoly in the Hidrovia basin. The 9 + 3 (under constr) PSV-offshore supply ships are more valuable on the 2nd hand market, then what they costed to built. Moreover they are fixed on longperiod charters to Petrobras at excellent rates. the 2nd hand FIRE-sale value of the above ships today, will be close to usd 600.million. Add to this amount, the 4 producttankers of 17.000 mt each and 2 container-ships of 1100 TEU, one inland tankerbarge of 43.000 mt dwat plus an ocean going pushtug, totalling minimum 25.million dollars, and one will arrive at a gross ships value of about usd 625.million.

Based on sept.2012 figures, cash + receivables are about 150.million against total liabilities of 616,5 million. adding new capital of 220.million and the fire-sale ships value of 625.million, one will arrive at assets of 378.5 million against 140.million outstanding shares, giving a value of USD 2,70 per share.

In addition to this value one should also add the fully automated shipyard in Punta Alvear, which these days churns out newly built jumbo barges, which are being sold at considerable profits for the company. this activity, together with the PSV-offshore division is the most profitable asset of ULTR.

In short, if one would decide to break-up the company and sell-off all assets in todays market, a value can be realized of about 3,00 usd p/share. If one would value the company as a going concern with a new shareholder that is able to cut costs and slim down overheads, a value of 4,00 to 5,00 usd per share should be possible to achieve in a not too distant future.

We think Southern Cross has made an excellent investment buying 78 % of such undervalued company. As shareholders, we can only hope, that entry-levels can be reached once again.

Disclosure: I am long ULTR.

Stocks: ULTR