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Dry bulk - 'Shipowning is not a business, it's an art'

Dry bulk - 'Shipowning is not a business, it's an art'
The dry bulk shipping arena’s upward trajectory is continuing and as earnings season for Q3 2017 results have continued onward, equity analysts were turning more positive.

At Deutsche Bank, Amit Mehrotra and his team expressed a view “that recent dry bulk rate and asset value trends will be sustained into year-end and beyond.” The team pointed to an increasingly positive view of Star Bulk (SBLK), Diana Shipping (DSX) and Navios Maritime Partners (NMM), looking at both the shipping market outlook and the financial structuring of each name.

Another stalwart in the sector, Safe Bulkers (SB) announced its Q3 results, showing a small profit of $0.04 pre share gain before non-recurring items, contrasted with a sharper year-earlier loss of $0.34 per share. The time-charter equivalent hire in 2017 Q3 were $10,419 per day on a 39 vessel, 3.4m dwt fleet comprised primarily of panamaxes, kamsarmaxes and post-panamax vessels - many on time charters - greatly exceeded the year earlier of $7,637 per day.

In the company’s presentation to investors, SB offered the view that demand growth is exceeding the increase in vessel supply. Its presentation also presented a “technical” perspective, unusual for investor presentations, on charter rates and asset values, showing that panamax charter rates continue to rise above their short term moving average. Importantly, the chart (shown below) also shows the asset values’ run-up lagging behind the elevated hire rates, implying that asset prices may not have seen the full extent of a run-up, an observation also voiced by Robert Bugbee of Scorpio Bulkers, SALT on his company’s call last week.

Safe Bulkers Picture1

In a Capital Link webcast aired in the days preceding the Q3 earnings, SB’s chairman and ceo, Polys Hajioannou talked through a wide range of issues. One unique aspect of SB that drew special mention in this discussion is the company’s stable of 12 post-panamax vessels- ranging in size from 87,000 dwt up to 96,000 dwt.

Similar to SALT’s Bugbee, Hajioannou lauded the “workhorse” aspect of a fleet of non-capesize vessels (though SB does have three), citing the vagaries of larger vessels’ dependence on iron ore. He pointed to new trades emerging since the opening of the widened Panama Canal which have benefited SB. He commented: “These ships can lift 25,000 tonne more than conventional panamaxes,” and noted that new trades have already emerged - for example coal from Latin American origins out to Asia. He added that: “We are optimistic that new trades, and new ton-miles will emerge.”

In response to questioning about SB’s secret sauce, an attention to detail which enabled it to ride through the recent year’s turbulence, Hajioannou commented “Shipowning is not a business…it’s an art.” He said that “During the weak markets of 2015 and 2016, we could not influence the freight market, but we could influence how competitive we are on the operating of the fleet. We managed to reduce our opex by around 30%.”

Another equity analyst, Douglas Mavrinac, from Jefferies, is also bullish on drybulk overall but, cautious on SB, giving it a “Hold” rating, as its recent share price surge has moved the share price well above its Net Asset Value/ share. Nevertheless, Mavrinac points to SB’s increased spot exposure in 2018, when vessels will come off their time charters, as a positive.

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