Quintana Maritime: Ready to Sail

| About: Quintana Maritime (QMAR)
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Quintana Maritime Limited (QMAR), based in Greece, is a global provider of shipping transportation services through the ownership and management of dry-bulk vessels. The company is focused primarily on modern Capesize and Panamax vessels with a principal objective in transport of iron ore, coal, grain and other valuable commodities within the dry bulk market.

As of May 1, 2007, Quintana owned and operated a fleet of 29 vessels, consisting of 11 Panamax vessels, 14 Kamsarmax vessels, and 4 Capesize vessels with a combined carrying capacity of almost 3.0 million deadweight tons.

The dwt weighted average age of the vessels, excluding the seven vessels on bareboat charters, is 2.8 years. In addition, Quintana has ordered 8 Capesize newbuilding vessels, one of which will be wholly owned and the remaining seven of which will be partially owned through joint ventures. Once all acquisitions and newbuilding orders are completed and assuming no further vessel disposals, Quintana will operate a fleet of 37 dry bulk vessels.

The Company charters its vessels to major trading houses, publicly traded companies, reputable vessel owners, major producers of raw materials, and government-owned entities. Its management provides the commercial and technical management of the entire fleet which includes entering into chartering and managing relationships with charterers.

Quintana Maritime Limited was incorporated in the Marshall Islands on January 13, 2005 and began operations on April 12, 2005.

Key Points

The Dry Bulk carrier ownership segment of the shipping industry, is quite fragmented with many owners and operators of shipping tonnage, including independent ones, state-controlled shipping companies and proprietary owners. Commoditized products along with the fact that globally there are a large number of players in this segment suggests of no single company having significant pricing power thus prompting a fierce level of competition in the field. QMAR, with its initial 29 vessels and its aggressive chartering model, is strategically well-positioned within the top owners of Panamax drybulk vessels in the market, giving the company the edge and advantage to fully and efficiently compete in search of gaining higher market share from the current levels.

The actual high demand experienced for ships is a derived demand since besides being cost effective, practical as well as reliable means of transportation internationally, in terms of large volumes of cargoes the services the ships provide are vitally important to global trade. One point deserving serious consideration is that the industry it is probably the most cyclic of all industries, since it is global and consequently gets affected by many factors ranging from world economic conditions to age of existing vessels, political events, delivery schedules, availability of ship building slots with ship yards, government regulations etc, etc.

However, despite of these fluctuations, unpredictabilities and the tendency to get affected by global events as an industry, the shipping markets demand has intensified especially with the acceleration of the drybulk segment run-up that began during the second quarter of fiscal '06 and presently continuing. This is obviously factored into many reasons but the most crucial one which further substantiates this element - remains the high growth of both the Chinese and Indian economy.

China continues to absorb supply as much as it is available out there from key source countries such as Brazil and Australia, leaving many other customers scrambling for what's left.

The role of India also comes into play. Let's remember here that, as per INSA, the container traffic at the Indian major ports is expected to grow at a remarkable CAGR of 15.57% till 2014. India's port capacity must increase by 130% to accommodate demand and that's not likely to happen over a short period of time. Brazil and Russia are not far behind in terms of fully realizing their own economical dynamic potentials.

Another substantial point worth mentioning, is the current availability with loads of liquidity in the shipping market from many sources, whether it is hedge funds or private equities ready to invest on vessel acquisitions and other aspects contributing to the continued upside in the shipping industry.

I think, it is only objective at this point to remain optimistic in relation to the potential of the shipping industry from a medium to long term perspective. The trend of substituting other commercial good transportation methods with container-type transportation suggest optimism conservatively into the next 2 years at least. The constant growth of world trade will also increase trade volumes which will subsequently translate into a higher demand for goods from developing and developed countries.

Let's not forget the important underlying factor of IMF's latest report in forecasting a worldwide growth upwards to 5.2% for the next few years. This is based on stronger than expected growth in developing countries and such growth is almost unprecedented. In the context of a strong economy and more importantly coming on the heels of the shipping market making continued new highs, companies like QMAR stand to significantly benefit from the current surging market environment.

Quintana is one of the largest international dry bulk companies operating one of the most modern fleets.

The company's assets value have experienced significant growth. $1.34 billion in market cap. Only 2.72 price/book. Profit margins stand at almost 27% while operating ones came in at almost 48%. Roe is a positive of 9.96%. Revenues printed at $169.53 million for a gross profit of $86.57 million with a net of over $45 million. The following needs to be highlighted - quarterly earnings growth yoy stands at 604.30%. Cash at hand is $42 million with a less than $2 million in total debt. Quintana has also a growing and stable dividend history starting with its initial payout of $0.05 during 2q05 followed by the next 8 to present of $0.31 payed during 2q07.

The company has a secure growth through 2011 in net operating days based on the estimated delivery dates for vessels in the acquired fleet. Since fiscal '05 Quintana has seen significant improvements in terms of operating cost base from fiscal '05 to current '07.


My take in this company is that, besides pursuing a strategy of disciplined growth and being excellently run by a top notch management team, there is significant upside potential on its stock based on distributable cash flow yield aspect as well as a steady and predictable cash flow visibility among other factors.

The stock should not be observed on a tick by tick basis, but rather as a long term hold with the potential to realize $48-$50 levels within a twelve to eighteen months time frame.