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  • A method for estimating a shipping company's quarterly revenue 0 comments
    Oct 25, 2010 11:40 PM | about stocks: FREE

    1.  Motivation

    This note presents a method for predicting the quarterly revenues of Freeseas Inc. (FREE, FREED) prior to earnings release.   This method is shown to be unbiased (i.e. no systematic overestimation or underestimation of revenues), and accurate to with +/- 5% of FREE’s actually quarterly revenues.  It is the hope that readers will be able to apply this method to other shipping companies, and ultimately estimate other aspects of a shipping company’s balance sheet (e.g. quarterly free cash flow, earnings per share, etc.).

    2.  Method

    The following steps are based on actual numbers from FREE’s 4th quarter of 2009.

    Step 1.  Create a new spreadsheet and add all ships and their charter rates in units of dollars per day.  FREE’s current charter rates are found on their webpage and their subsequent updated charter rates are provided via press releases.   The first set of rates were the charter rates as of 9/1/2009.

     

    09/01/09

    Destiny

    10000

    Envoy

    7900

    Goddess

    12500

    Hero

    14500

    Impala

    8750

    Jupiter

    25216

    Knight

    8300

    Lady

    51150

    Maverick

    9500

    Neptune

    15000

     

    Step 2.  Every time FREE updates its charter rates, update the spreadsheet accordingly.  Be sure to note the date of the press release at the top of the column.  For example, during Q4 2009, FREE updated its charter rates two other times during the quarter – 11/19/2009 and 12/15/2009.

     

    09/01/09

    11/19/09

    12/15/09

    Destiny

    10000

    9075

    14000

    Envoy

    7900

    7200

    7200

    Goddess

    12500

    12500

    12500

    Hero

    14500

    11500

    11500

    Impala

    8750

    11500

    13500

    Jupiter

    25216

    25216

    25216

    Knight

    8300

    7000

    15000

    Lady

    51150

    51150

    51150

    Maverick

    9500

    10000

    14000

    Neptune

    15000

    20000

    16000

     

      Step 3.  Calculate the number of days between charter changes, and make sure the total number of days sum to the total number of days in the quarter.  For example, in Q4 2009:

    # days 9/1 – 11/18

    # days 11/19 – 12/15

    # days 12/16 – 12/31

    total

    49

    27

    16

    92

     

    Step 4.  Multiply the number of days by the appropriate charter rate and sum over all ships.  For example, in Q4 2009:

    Ship name

    cum. Revs

     

    cum. Revs

     

    cum. Revs

    Destiny

    49

    490000

    27

    245025

    16

    224000

    Envoy

    49

    387100

    27

    194400

    16

    115200

    Goddess

    49

    612500

    27

    337500

    16

    200000

    Hero

    49

    710500

    27

    310500

    16

    184000

    Impala

    49

    428750

    27

    310500

    16

    216000

    Jupiter

    49

    1235584

    27

    680832

    16

    403456

    Knight

    49

    406700

    27

    189000

    16

    240000

    Lady

    49

    2506350

    27

    1381050

    16

    818400

    Maverick

    49

    465500

    27

    270000

    16

    224000

    Neptune

    49

    735000

    27

    540000

    16

    256000

    SUM

     

    7977984

     

    4458807

     

    2881056

     

             

    cummulative revenues

    Step 5.  Sum all of the cumulative revenue values:

    sum 1

    sum 2

    sum 3

    total

    total (million)

    7977984

    4458807

    2881056

    15317847

    15.32

             
           

    16

    224000

    Step 6.  In order to calculate the total revenues, we need to multiply the total from step 5 by the utilization rate.  The utilization rate is essentially the percentage of time that FREE’s ships were actually earning revenues (i.e. transporting goods).  I assumed an utilization rate of 0.94, which was pulled from the previous quarter’s earnings report.  The estimated quarterly revenues then become:  0.94 x 15.32 = 14.25 million.

    This is a simple method for estimating FREE’s quarterly revenues.

    Verification

    I applied this method to Q409, Q110, and Q210.  The table below highlights my performance. 

     

    forecast

    actual

    % off

    Q4 2009

    14.2456

    14.5

    -1.8

    Q1 2010

    15.1076

    15.66

    -3.5

    Q2 2010

    16.9608

    16.5

    2.8

    Conclusion

    This method can be used to estimate a shipping company’s revenues prior to an earnings release.  The drybulk company, Freeseas, was used as an example since it operates in the spot market and updates its charter rates often.  It should be noted that sometimes charter terms include a ballast bonus.  These are one-time fees earned that must also be added to the quarterly revenue estimate.  Future comments will provide methods for analyzing other aspects of Freeseas balance sheet.

     



    Disclosure: long FREE
    Themes: shipping, drybulk Stocks: FREE
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