Paragon Shipping, Safe Bulkers and Operational Costs in Dry Bulk Shipping
Long/Short Equity, Value
Seeking Alpha Analyst Since 2011
Paragon Shipping's (PRGN) Q1 numbers, just out, provide an opportunity to examine whether one should take into consideration only NAV (at market values) when valuing dry bulk shipping companies or whether one should factor in other elements, such as management quality or operational efficiency. The table below compares PRGN's Q1 income statement with that of Safe Bulkers (SB).
Income Statement for the Three-Month Period Ended March 31, 2011 (in $1,000)
| Safe Bulkers | Paragon Shipping | |
| REVENUES: | ||
| Revenues | 43,045 | 29,020 |
| Commissions | -771 | -1,530 |
| Net revenues | 42,274 | 27,489 |
| EXPENSES: | ||
| Voyage expenses | -51 | -125 |
| Vessel operating expenses Drydocking | -5,744 | -5,530 |
| -751 | ||
| Depreciation | -5,583 | -8,760 |
| General and Administrative; Management fees | -1,938 | -2,830 |
| -1,376 | ||
| Early redelivery (cost)/income | 101 | |
| Bad debt | -168 | |
| Gain on sale of asset | - | |
| Operating income | 29,059 | 7,949 |
| OTHER (EXPENSE) / INCOME: | ||
| Interest expense | -1,716 | -2,400 |
| Other finance costs | -57 | |
| Interest income | 286 | 41 |
| Loss on derivatives | -6 | -179 |
| Foreign currency gain (loss) | -169 | 15 |
| Amortization and write-off of deferred finance charges | -89 | |
| Net income | 27,308 | 5,425 |
| Earnings per share | 0.41 | 0.09 |
| Weighted average number of shares | 65,881,600 | 56,282,522 |
| Debt ($1000) | 486,000 | 328,000 |
| Vessels Q1 | 16 | 13 |
| dwt | 1,443,800 | 747,994 +2x3,426 TEU |
SB had about a 70% larger fleet than PRGN on a dwt basis and better charters, so the difference in revenue is logical. But revenue doesn't matter since we are looking at costs. Despite a much smaller fleet, PRGN managed to accrue twice as much commissions, twice as much G&A expenses (SB includes management fees in G&A - they didn't have drydocking in Q1) and a bit more in vessel operating expenses - all including large chunks of related party costs, some non-cash. More interestingly, SB has 50% higher debt but pays about 30% less interest than PRGN.
The point is that no matter what great asset or charter deals a company is seen to be making, such super rents may be eroded by (sometimes purposefully) inefficient operation. A discount to any NAV is certainly warranted then.
SB and PRGN are simple to understand and this comparison is easy and revealing. It would be interesting if someone would add to the comparison companies better regarded than PRGN, such as DSX, NMM or GNK, controlling for size and age of fleet. At least Paragon's accounts are detailed and do balance, something it is difficult to say for OCNF for example, which appears to be a black hole.
EDIT: Q2 2011
Income Statement for the Three-Month Period Ended June 30, 2011 (in $1,000)
| Safe Bulkers | Paragon Shipping | |
| REVENUES: | ||
| Revenues | 41,974 | 25,094 |
| Commissions | -788 | 1,446 |
| Net revenues | 41,186 | 23,648 |
| EXPENSES: | ||
| Voyage expenses | -756 | -103 |
| Vessel operating expenses Drydocking | -6,521 | -4,696 |
| -1,059 | ||
| Depreciation | -5,645 | -8,150 |
| General and administrative Management fees | -1,954 | -2,724 |
| -1,236 | ||
| Early redelivery (cost)/income | ||
| Bad debt | -84 | |
| Gain/loss on sale of asset | -14,796 | |
| Impairment | -5,000 | |
| Operating income | 26,310 | -13,289 |
| OTHER (EXPENSE) / INCOME: | ||
| Interest expense | -1,558 | -2,939 |
| Other finance costs | -43 | |
| Interest income | 242 | 205 |
| Loss on derivatives | -6,145 | -1,222 |
| Foreign currency gain (loss) | -222 | -15 |
| Amortization and write-off of deferred finance charges | -89 | |
| Equity in net income of affiliate | 482 | |
| Net income | 19,107 | -16,777 |
| Earnings per share | 0.27 | -0,28 |
| Weighted average number of shares | 70,116,022 | 58,254,929 |
| Debt ($1000) | 427,000 | 253,000 |
| Vessels | 16 | 11 |
| dwt | 1,443,800 | 747,994 |
Same comments: while Paragon has a fleet much smaller than the one of Safe Bulkers, its expenses are much higher (ignore revenue line, and one-off items).
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