Dry Bulk Shippers transport both major bulk (iron ore, coal, and grain) and minor bulk (steel products, fertilizers, cement, bauxite, sugar and scrap metal) cargo. Until about five years back, oil tanker companies were chiefs at the helm when it came to investment choices in publicly trading shipping companies in the US stock exchanges. Small Greek shipping companies and/or subsidiaries of global conglomerates controlled the dry-bulk shipping arena. That course altered as the emerging market story developed with China and India importing raw materials at an accelerating pace demonstrating double-digit growth. In the past few years, numerous shippers focused solely in the dry bulk market made their IPO (Initial Public Offering). The Baltic Dry Index (BDI) tracks the daily average prices to ship dry bulk materials. BDI was considered a “sleepy index” till the end of 2002 – during the prior twenty years that ended 2002 its index value stayed within a narrow band of between 800 and 1000. The demand growth resulted in this index showing extreme volatility during the last three years with the index fluctuating sharply between 650 and 12000.
A list of the major Dry Bulk Shipping IPOs follows:
Those companies early to IPO had a slight advantage – the opportunity to buy vessels required to conduct their business at favorable rates as the price increased at a 20% annual rate over the last three years. That situation has come to pass as the Baltic Dry Index capitulated with the rest of the world economy in the latter half of last year.
The financial structures of these companies are all over the map. Below is a summary:
* Financials as of 01/15/2009 from Yahoo Finance.
The debt to equity ratio gives an indication of how much leverage the company has – lower that number, the less financial leverage thereby reducing the risk the company is taking. The top-3 risky companies by this measure are FreeSeas Inc. (FREE), Eagle Bulk Shipping (EGLE), and DryShips (DRYS). The least risky ones are Euroseas (ESEA), Diana Shipping (DSX), and TBS International (TBSI).
These companies enjoyed very high shipping rates as the Baltic Exchange Dry Index (BDI) accelerated in the beginning of the year and stayed high for the first 2-quarters. The BDI surrendered 90% since then laying bare the especially volatile nature of dry bulk shipping industry. The Revenue, Net Income, and Dividend fields in the spreadsheet reflect numbers that are lofty especially for companies that benefited from the spot market. Currently the BDI index is artificially low but a rapid return to 2008 levels is not expected in the near future, so exercise caution when valuing these companies based on the trailing 12-month earnings. Furthermore, the index driving the financial performance of these companies is very volatile making inaccurate any attempt on valuing these companies based solely on current financials.
The following discussion looks at valuing these companies based on the value of assets. Below is a spreadsheet that summarizes the assets (owned fleet):
* See fleet valuation details below.
It is hard to place a value on the ships owned by different companies. The selling prices differ depending on the Baltic Dry Index value, the age and type of vessel, tonnage, and other factors. We used the following formula to come up with the projected value in the above spreadsheet:
*The percentage figure is after taking out the $1.2B DryShips paid for the Ocean Rig ASA acquisition.
The “Enterprise Value as a percentage of Fleet Value” measure is well below 100 for all the companies. Though this provides a good cushion it has to be tallied against the fact that in a depressed rate environment, disposing off assets at anywhere close to the fleet values above is not a trouble-free task. The best three companies by this measure are Excel Maritime (EXM), Ocean Freight (OCNF), and Star Bulk Carriers Corporation (SBLK). This measure however ignores several risk factors that affect company valuation and investment decision:
On a parting note, the shipping industry has several other categories that may also be worthwhile investments. Some investment options to consider are:
We purchased DryShips (DRYS) on 10/09/2008 at $19.25 and doubled down on 11/20/2008 at $4.08. Further, we wrote Feb 15 covered calls against half our position on 01/16/2009.
DryShips just scuttled huge expansion plans by canceling an agreement to purchase newer capesize ships in exchange for shares worth close to $700M. Also, they were not able to purchase $400M worth of newer Panamax vessels because of financing difficulty. Even so, the latter agreement has a silver lining - DryShips has an option to purchase them before the end of 2009 for $160M. Any expansion should allow positioning themselves as the biggest players in the space. Also, they plan to divest the Ocean Rig ASA assets to shareholders of DryShips through an IPO. These can turn out to be immense positives if and when the market turns around. On the other hand, in an extended downturn one can see the company having trouble making debt payments. This can result in them having to dispose off assets at fire sale prices – a tough scenario for shareholders…
Related Posts:
1. Quick Take on Frontline Limited (FRO).
Last Updated: 10/2011.
A list of the major Dry Bulk Shipping IPOs follows:
| Company | IPO Date | Comments |
| DryShips (DRYS) | 2/2005 | Founded by Greek shipping tycoon George Economou. |
| Genco Trading and Shipping (GNK) | 7/2005 | |
| Eagle Bulk Shipping (EGLE) | 6/2005 | |
| Paragon Shipping (PRGN) | 8/2007 | |
| TBS International (TBSI) | 6/2005 | |
| Navios Maritime (NM) | 12/2004 | The first to enter the IPO market during the wave of IPOs beginning early 2005. |
| Diana Shipping (DSX) | 03/2005 | |
| Excel Maritime Carriers (EXM) | 05/1998 | The first dry bulk shipping company to tap the US IPO market. |
| Euroseas Inc. (ESEA) | 05/2006 | |
| OceanFreight Inc. (OCNF) | 04/2007 | |
| FreeSeas Inc. (FREE) | 12/2005 | |
| Safe Bulkers (SB) | 05/2008 | Safe Bulkers IPO timing was especially bad as the BDI capitulated immediately after their IPO. |
| Star Bulk Carriers Corp. (SBLK) | 03/2006 |
Those companies early to IPO had a slight advantage – the opportunity to buy vessels required to conduct their business at favorable rates as the price increased at a 20% annual rate over the last three years. That situation has come to pass as the Baltic Dry Index capitulated with the rest of the world economy in the latter half of last year.
The financial structures of these companies are all over the map. Below is a summary:
| Company | Market Capitalization | Enterprise Value | Debt to Equity Ratio | Price Per Share | Revenue | Net Income/Share (Trailing 12 months) | Dividend Yield | Inside Ownership |
| DryShips (DRYS) | 635M | 3.22B | 1.360 | 14.60 | 1.10B | 846.29M | 5.10 | 35% |
| Genco Trading and Shipping (GNK) | 487M | 1.43B | 1.386 | 15.47 | 369.49M | 258.82M | 22.70 | 20% |
| Eagle Bulk Shipping (EGLE) | 300M | 1.02B | 1.459 | 6.40 | 161.07M | 68.80M | 27.90 | 2.74% |
| Paragon Shipping (PRGN) | 154M | 478M | 1.261 | 5.67 | 166.08M | 69.98M | 29.80 | 25% |
| TBS International (TBSI) | 303M | 562M | 0.584 | 10.15 | 588.89M | 192.32M | None | 39% |
| Navios Maritime (NM) | 362M | 999M | 0.912 | 3.59 | 1.37B | 320.61M | 9.30 | 29% |
| Diana Shipping (DSX) | 898M | 1.07B | 0.218 | 11.96 | 311.94M | 203.73M | NA | 24% |
| Excel Maritime Carriers (EXM) | 323M | 1.84B | 1.181 | 7.38 | 567.82M | 318.59M | 19 | 4% |
| Euroseas Inc. (ESEA) | 142M | 128M | 0.213 | 4.66 | 134.26M | 61.51M | 15.9 | 33% |
| OceanFreight Inc. (OCNF) | 77M | 318M | 1.228 | 4.67 | 131.43M | 45.66M | 66 | 21% |
| FreeSeas Inc. (FREE) | 30M | 197M | 1.465 | 1.43 | 53.34M | 11.55M | 19.60 | 28% |
| Safe Bulkers (SB) | 332M | 842M | NA | 6.10 | 210.50M | 142.98M | 22 | None |
| Star Bulk Carriers Corp. (SBLK) | 162M | 460M | 0.586 | 2.89 | 169.73M | 85.15M | 24 | 37% |
The debt to equity ratio gives an indication of how much leverage the company has – lower that number, the less financial leverage thereby reducing the risk the company is taking. The top-3 risky companies by this measure are FreeSeas Inc. (FREE), Eagle Bulk Shipping (EGLE), and DryShips (DRYS). The least risky ones are Euroseas (ESEA), Diana Shipping (DSX), and TBS International (TBSI).
These companies enjoyed very high shipping rates as the Baltic Exchange Dry Index (BDI) accelerated in the beginning of the year and stayed high for the first 2-quarters. The BDI surrendered 90% since then laying bare the especially volatile nature of dry bulk shipping industry. The Revenue, Net Income, and Dividend fields in the spreadsheet reflect numbers that are lofty especially for companies that benefited from the spot market. Currently the BDI index is artificially low but a rapid return to 2008 levels is not expected in the near future, so exercise caution when valuing these companies based on the trailing 12-month earnings. Furthermore, the index driving the financial performance of these companies is very volatile making inaccurate any attempt on valuing these companies based solely on current financials.
The following discussion looks at valuing these companies based on the value of assets. Below is a spreadsheet that summarizes the assets (owned fleet):
| Company | Fleet Details | Total Capacity in dwt | Average Age | Projected Fleet Value* | Comments |
| DryShips (DRYS) | 7 Capesize, 29 Panamax, 2 Supramax | ~3.1M Tonnes | ~7 years | 2.95B | Also have substantial additional assets from Ocean Rig ASA acquisition. |
| Genco Trading and Shipping (GNK) | 5 Capesize, 6 Panamax, 3 Supramax, 6 Handymax, and 8 Handysize | ~2.02M Tonnes | ~6 years | 1.90B | |
| Eagle Bulk Shipping (EGLE) | 17 Supramax and 7 Handymax. | ~1.02M Tonnes | ~7 years | 1.20B | The capacity is expected to reach 3M tones by 2012 – Specializes in the Supramax category. |
| Paragon Shipping (PRGN) | 7 Panamax drybulk carriers, 3 Handymax drybulk carriers, and 2 Supramax drybulk carrier | ~0.75M Tonnes | ~8 years | 830M | |
| TBS International (TBSI) | 24 multipurpose tweendeckers, 23 handymax | 1.40M Tonnes | ~21 years | 590M | Also offers certain port services & associated logistics as value added services. |
| Navios Maritime (NM) | 11 Ultra Handymax, 6 Panamax, and 1 Product Handysize. | 1.06M Tonnes | ~6 years | 1.24B | Also has a large fleet of long-term chartered-in vessels (some have purchase options), terminal operations, and certain other value added services. |
| Diana Shipping (DSX) | 13 Panamax and 6 Capesize. | 2.01M Tonnes | ~5 years | 1.85B | |
| Excel Maritime Carriers (EXM) | 5 Capesize, 14 Kamsarmax, 21 Panamax, 2 Supramax, and 6 Handymax | 3.9M Tonnes | ~8 years | 3.90B | |
| Euroseas Inc. (ESEA) | 2 Panamax, 8 Handysize, 3 Intermediate, and 2 feeders | 0.56M Tonnes | ~17 years | 156M | Roughly half the fleet is used for Container shipments. |
| OceanFreight Inc. (OCNF) | 8 Panamax and 1 Capesize | 0.75M Tonnes | ~12 years | 630M | Also has a tanker fleet with a total of 0.44M dwt. |
| FreeSeas Inc. (FREE) | 6 Handysize, 3 Handymax | 0.27M Tonnes | ~13 years | 235M | |
| Safe Bulkers (SB) | 5 Panamax, 4 Post-Panamax, and 3 Kamsarmax | 0.98M Tonnes | ~3 years | 1.25B | The capacity is expected to double by 2010. |
| Star Bulk Carriers Corp. (SBLK) | 8 Supramax and 4 Capesize | 1.1M Tonnes | ~9 years | 820M |
It is hard to place a value on the ships owned by different companies. The selling prices differ depending on the Baltic Dry Index value, the age and type of vessel, tonnage, and other factors. We used the following formula to come up with the projected value in the above spreadsheet:
- Panamax, Handysize, Handymax, Kamsarmax, etc Vessel Valuation: The going-rate for new Panamax vessels in the mid-2008 timeframe was $1350 per dwt (dead weight tonnes). Also assumed is a depreciation of $30 per year for the first 10 years followed by $60 per year for the following years.
- Capesize Vessel Valuation: The going-rate for new Capesize vessels in the mid-2008 timeframe was $750 per dwt. Assumed is a depreciation of $20 for the first 10 years followed by $40 for the following years.
| Company | Market Cap | Enterprise Value | Projected Fleet Value | Enterprise Value as a Percentage of Fleet Value |
| DryShips (DRYS) | 635M | 3.22B | 2.95B | 68* |
| Genco Trading and Shipping (GNK) | 487M | 1.43B | 1.90B | 75 |
| Eagle Bulk Shipping (EGLE) | 300M | 1.02B | 1.20B | 85 |
| Paragon Shipping (PRGN) | 154M | 478M | 830M | 58 |
| TBS International (TBSI) | 303M | 562M | 590M | 95 |
| Navios Maritime (NM) | 362M | 999M | 1.24B | 81 |
| Diana Shipping (DSX) | 898M | 1.07B | 1.85B | 58 |
| Excel Maritime Carriers (EXM) | 323M | 1.84B | 3.90B | 47 |
| Euroseas Inc. (ESEA) | 142M | 128M | 156M | 82 |
| OceanFreight Inc. (OCNF) | 77M | 318M | 630M | 50 |
| FreeSeas Inc. (FREE) | 30M | 197M | 235M | 84 |
| Safe Bulkers (SB) | 332M | 842M | 1.25B | 67 |
| Star Bulk Carriers Corp. (SBLK) | 162M | 460M | 820M | 56 |
The “Enterprise Value as a percentage of Fleet Value” measure is well below 100 for all the companies. Though this provides a good cushion it has to be tallied against the fact that in a depressed rate environment, disposing off assets at anywhere close to the fleet values above is not a trouble-free task. The best three companies by this measure are Excel Maritime (EXM), Ocean Freight (OCNF), and Star Bulk Carriers Corporation (SBLK). This measure however ignores several risk factors that affect company valuation and investment decision:
- Average charter duration – the more the duration lesser the risk.
- “Management cartels” with conflicts of interests is a general problem with this industry. Shareholders should be agile over the percentage management ownership stake – as this percentage increases, the associated risk goes lower.
- Counter-party contract risk: Diversification level of charter portfolio reduces the risk. Customer’s credit-worthiness and contract details are other associated risk factors that are intricated to gauge.
- Rate fluctuations across vessel categories: Based on tonnage, Panamax-Capesize rates should roughly be 1:2. But, because of supply-demand factors, now it is at 1:4. The type of vessels a company owns is a risk factor and diversifying across the categories may be the only way to reduce this risk.
On a parting note, the shipping industry has several other categories that may also be worthwhile investments. Some investment options to consider are:
- Frontline & Nordic American Tanker Ship (oil tankers),
- Seaspan & Danaos (Containers), and
- Ship Finance Limited (SFL) – Leasing.
We purchased DryShips (DRYS) on 10/09/2008 at $19.25 and doubled down on 11/20/2008 at $4.08. Further, we wrote Feb 15 covered calls against half our position on 01/16/2009.
DryShips just scuttled huge expansion plans by canceling an agreement to purchase newer capesize ships in exchange for shares worth close to $700M. Also, they were not able to purchase $400M worth of newer Panamax vessels because of financing difficulty. Even so, the latter agreement has a silver lining - DryShips has an option to purchase them before the end of 2009 for $160M. Any expansion should allow positioning themselves as the biggest players in the space. Also, they plan to divest the Ocean Rig ASA assets to shareholders of DryShips through an IPO. These can turn out to be immense positives if and when the market turns around. On the other hand, in an extended downturn one can see the company having trouble making debt payments. This can result in them having to dispose off assets at fire sale prices – a tough scenario for shareholders…
Related Posts:
1. Quick Take on Frontline Limited (FRO).
Last Updated: 10/2011.
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