Welcome to Shipping Online!   [Sign In]
Back to Homepage
Already a Member? Sign In
News Content

Dry Bulk Equities to Rebound Modestly Amid Fragile Earnings

In 2014, the value of equity market participants in listed Dry Bulk companies eroded massively, with many companies losing more than half of their market capitalisation. At the start of 2014, the market expected earnings to improve on the back of recovery in underlying freight markets, but optimism soon turned to pessimism as the companies failed to meet expectations through the year. DMER believes the depressed market could recover partly in 2015 and expects underlying earnings to improve marginally.

Devanshu Saluja and Rahul Kapoor, analysts at DMER stated, “We see a fragile earnings outlook for the Dry Bulk sector with an uptick in demand pushed late into the year. However, moderating supply growth should see better fundamentals emerge through 2015-16 and the improving supply-demand balance should see stock prices stage a modest rebound in 2015.”

DMER has rated Navios Maritime Holdings and D/S NORDEN as Attractive, while it classifies Scorpio Bulkers as a high-risk, high-reward proposition.

Navios Maritime Holdings is DMER’s top pick because of its flexible asset ownership and interest in different businesses. We expect steady growth in its dry bulk shipping segment and stronger traction in its logistics segment over the next few years. While stakes in Navios Maritime Partners and Navios Maritime Acquisition Corp generate value for the company, Navios’ leverage is expected to remain high. We accord a fair value of USD 6.2 per share, which provides significant upside, in addition to a dividend yield of ~6% at the current share price. Navios Maritime Holdings scores a green and an orange light on DMER’s bespoke value and risk ranking, indicating an Attractive valuation and Medium risk.

D/S NORDEN, which operates a fleet of dry cargo and tanker vessels, is DMER’s second pick because its strong balance sheet and high tanker shipping rates will counterbalance the near-term softness in dry bulk shipping. It also has a large proportion of charter-in fleet that allows it to maintain an optimal fleet size depending on market conditions. DMER expect the company to narrow its loss in FY15 before it turns profitable in FY16. At the end of 3Q14, the company’s debt-to-equity ratio stood at 17%, which we expect will increase to 28% at the end of 4Q16.The stock offers a favorable risk-reward profile with our fair value estimate of DKK 171 per share. D/S NORDEN also scores a green and an orange light on DMER’s bespoke value and risk ranking, indicating an Attractive valuation and Medium risk.

Scorpio Bulkers offers a high upside potential considering that accelerated vessel deliveries in FY15 and FY16 will prop up earnings. According to our estimates, the company’s EBITDA will increase to USD 144m in FY16 from negative USD 53m in FY14 because of higher TCE revenues and operational efficiencies of its modern fleet. However, investment in SALT is a high-risk, high-reward proposition considering the company’s limited operating history and investors’ skepticism after the value-dilutive equity issuance. DMER assigns a fair value of USD 2.9 per share to the company, and expects it to be a candidate for bottom-fishing. SALT scores a green and a red light on DMER’s bespoke value and risk ranking, indicating an Attractive valuation and High risk.

image

DMER “Neutral” on Pacific Basin and Diana Shipping

Pacific Basin is a market leader in the Handysize segment with a steady earnings stream and strong balance sheet. The company’s vessel fleet has been acquired at low cost and its diverse customer and cargo base enhances its utilisation and earnings. However, the company’s focus on small-sized vessels decreases its leverage to cyclical upturns. DMER expects the company to report a net loss in FY14, although it should return to the black in FY15 benefited by incremental contributions from newbuilds. We assign it a Neutral rating with a fair value of HKD 3.1 per share. Pacific Basin scores an orange light each on DMER’s bespoke value and risk ranking, indicating a Neutral valuation and Medium risk.

Diana Shipping is a leading operator of large-sized dry cargo ships with presence in Capesize, Post-Panamax and Panamax segments. DMER does not see material upside to the stock price in the near term because of sluggish freight rates, especially for Capesize vessels, and expects the company to post losses between FY14 and FY16, although Diana Shipping has a strong balance sheet and balanced spot-market exposure. DMER assigns a Neutral rating with a fair value of USD 6.5 per share. Diana Shipping also scores an orange light each on DMER’s bespoke value and risk ranking, indicating a Neutral valuation and Medium risk.
Source: Drewry Shipping Consultants Limited

About Us| Service| Membership and Fee| AD Service| Help| Sitemap| Links| Contact Us| Terms of Use