Follow Shipping Stocks?

[73ss454]

I bought NM Sept $10 Calls @ $1.90 a month or so ago. I was waiting until NM hit $15 to sell and almost sold at $14.50?

I hope I won't be waiting too much longer for NM to get back up there?

In hindsight, I should have sold at $14.50 and I could have re-entered now. Oops.

Lance

Lance, you know what they say about market timers.

 

[PsyopRanger]

I know, I know

I bought NM back in 2006 when it was BULKW as a long term investment.

I limit options to less than 1% of my overall investing, maybe I should switch to No Limit Hold'em? At least I would get free drinks!!

Lance

 

[brewer12345]

I bought NM back in 2006 when it was BULKW as a long term investment.

I did the same. Let go of 2/3 of my initial stake in the warrants and kept the rest (exercised for stock, actually). I expect to handg on for the forseeable future given the company's prospects and valuation. However, I would look to lighten up at a (higher) price simply because I have such a large position (for me).

 

[BUM]

I bought NM back in 2006 when it was BULKW as a long term investment.

I bought NM and others back in 2006 when it was FUN to own shipping stocks. Now every wingnut on the block is in the act.

 

[brewer12345]

I bought NM and others back in 2006 when it was FUN to own shipping stocks. Now every wingnut on the block is in the act.

And t he wingnuts appear to have no idea what they own. None of these stocks trade on fundamentals, as far as I can see.

 

[dm]

I'm still holding but I'm in the red now. Hopefully the dividends will keep comming in.

 

[unclemick]

Hmmm - I bought EGLE back when Brew first mentioned it on this forum.

Hey! - am I supposed to look at the price or something? - every tax time there's a 1099 for dividends.

Besides it hasn't been 7-10 yrs yet - I don't mind short term trading - but I don't want to be hyper active.

As long as they keep sailing/hauling cargo - I can keep watching football.

Right?

heh heh heh - so in 2014 I can dump EGLE if it doesn't do well. .

 

[73ss454]

Still holding NM but starting to wonder why. I sorta feel like a ship captain in some way.

 

[Art G]

Geez, FRO sure looks like it's trying to hold support. Nice dividend too.

 

[Running_Man]

Well since the all-time BDI index was hit, at 11,793 on May 17, 2008 2 days after the ideas of several poster floated the idea of reducing shares held -- the BDI is now down to 5,255.

The average capesize time charter is now $75,399 down from $233,988 on May 17th. From the time EGLE was issued as a new issue to it's peak on May 16 2008 charters went from a little over $20,000 to $233,988. The capesize time charter decline is even more vicious than the year end one that sent DSX from it's top in early November 2007 of 45 to 21 where it again rests.

Personally I view these for a more interesting indicator on world economic activity and take this as an indication that the global economy is slowing very rapidly and expect 4th quarter numbers for international companies are going to be bleak. Note that the peak in the S&P500 at 1565 came at about the same time as the peak in the BDI in late October 2007 and the recovery peak for the S&P500 arrived at the same general time as the May 17th peak when the S&P was at 1426.

The action of these stocks is a leading indicator that the market is in for near term hell.

 

[brewer12345]

The BDI and spot rates in general are extremely volatile (they make the S&P look like glass). At least for the companies with lots of time charter coverage (including NM, EGLE and others), the selldowns based on what spot rates are doing is lunacy. And despite what the spot rates have done, I see no lack of willingness on the part of charterers to sign deals that are very lucrative for owners. For example, one of the charters reported today was a 10 year deal for a ship that will not even hit the water until late 2010. Over the life of the charter, the indicated rate will more than pay for the cost of the ship. After the charter is over, the owner will have a more than paid for ship that still has at least 15 years of life yet. Such a ship today would be worth something like $100MM. So I think the sell-off is silly.

But, and its a big one, these equities are quite volatile and anyone looking at them should have the stomach for it.

 

[Dawg52]

But, and its a big one, these equities are quite volatile and anyone looking at them should have the stomach for it.

I've been aboard for quite some time, might as well ride out the choppy waves. I'm gonna follow Unclemick's advice.

See Rewahoo, I don't always bitch. Of course I just got through playing the 19th hole.

 

[Running_Man]

For example, one of the charters reported today was a 10 year deal for a ship that will not even hit the water until late 2010. Over the life of the charter, the indicated rate will more than pay for the cost of the ship. After the charter is over, the owner will have a more than paid for ship that still has at least 15 years of life yet. Such a ship today would be worth something like $100MM. So I think the sell-off is silly.

This is NM to which you refer and they are buying 2 vessels for $109 million per ship. Both have 10 year contracts although the second at a higher charter rate is a 7 year charter with a 3 year option for the charter.

The first vessel is chartered at $42,250 per day for 10 years. The second vessel is at $44,850. According to my sources the cost of operation of the boat should be about $25,000 per day. Available days should be 350 so the net profit of 17,250 perday on the 10 year vessel results in 6.0375 million dollars additional cash flow. They are financing the ships with 130 million at Libor plus 100 basis points, with the remainder to come from operational cash flows, at current a little over 4 percent for interest expense would be 5.2 million or 2.6 million per boat deducted from cash flow. The result seems to indicate additional cash flow of 3.4 million per year from the 10 year ship and 4.4 million from the 7 year ship with the 3 year option, while still being cash flow positive, this will not "pay" for the vessels. While there is a good possibility the deals will be positive to net income, there will not be enough income to pay off all the debt on the boats, without selling the boats in year 10.

Overall the deals look like they will add 7.8 cents per share in additional cash flow per share over the 10 years, with cash flow on these deals being subject to the LIBOR rates over the 10 year period. Every 3/4 point increase in LIBOR will reduce the cash flow by 1 million or 1 cent per share.

 

[brewer12345]

This is NM to which you refer and they are buying 2 vessels for $109 million per ship. Both have 10 year contracts although the second at a higher charter rate is a 7 year charter with a 3 year option for the charter.

The first vessel is chartered at $42,250 per day for 10 years. The second vessel is at $44,850. According to my sources the cost of operation of the boat should be about $25,000 per day. Available days should be 350 so the net profit of 17,250 perday on the 10 year vessel results in 6.0375 million dollars additional cash flow. They are financing the ships with 130 million at Libor plus 100 basis points, with the remainder to come from operational cash flows, at current a little over 4 percent for interest expense would be 5.2 million or 2.6 million per boat deducted from cash flow. The result seems to indicate additional cash flow of 3.4 million per year from the 10 year ship and 4.4 million from the 7 year ship with the 3 year option, while still being cash flow positive, this will not "pay" for the vessels. While there is a good possibility the deals will be positive to net income, there will not be enough income to pay off all the debt on the boats, without selling the boats in year 10.

Overall the deals look like they will add 7.8 cents per share in additional cash flow per share over the 10 years, with cash flow on these deals being subject to the LIBOR rates over the 10 year period. Every 3/4 point increase in LIBOR will reduce the cash flow by 1 million or 1 cent per share.

I normally let you fester on ignore, love muffin, but these statements are so egregiously off the mark that they need to be corrected.

First, the 10 year charter I mentioned was not one of the two NM announced. It was a separate charter that i think was on someone else's boat.

Second, your numbers are way, way off. The two vessels together will bring in $87,100 per day. Available days are more like 360 or 362 a year, but we will call it 360. That gives annual revenue of $31.4MM. Cash costs for these ships are about $5000/day (your 25k number is way off; dunno where you got it from but it is flat wrong). So Cash operating costs are $3.7MM annually. This gives us EBITDA from the two ships of 31.4 - 3.7 = 27.7MM annually. NM has typically financed their cape newbuilds with 70% debt and 30% equity. Assuming they do the same with these ships, they would owe $153MM at LIBOR plus 1%, or about 4%. This suggests annual interest cost of $6.1MM. So free cash flow from these ships is 27.7 - 6.1 = $21.6MM annually.So in the first 7 years of ownership, the ships throw off 21.6 X 7 = $151.2MM in free cash flow. Assuming all of this money is used to pay down the debt, the ships will be paid for after 7 years of ownership.

Put another way, NM will put up roughly $65MM in equity to buy these two ships and get $21.6MM in free cash flow from them annually. That looks a lot like a cash-on-cash yield of 21.6/65 = 33.2%. I will grant that I am bad at math, but any company that can generate a 33% yield on incremental equity they employ with the yield locked in for 7 years is OK in my book.

Oh yeah, and the two ships look to add something like 20 cents per share in annual cash flow. IIRC, the CEO who owns a quarter of the company has a law degree and was an investment banker for a while in addition to growing up in a ship-owning family. Her English may be heavily accented and she might not be patient enough in answerng dumb analyst questions on conference calls, but I've not seen any signs that she was dumb.

 

[Running_Man]

Brewer, despite what you might think I am truly just trying to understand this.

I called the head of NM's head of investor relations, Thomas Rozycki. who provided the figures on operating costs to me. I asked for all in costs of operation so I could calculate annual cash return of the ships for a net present value calculation before interest. He told me their expectation was that it would take just over 11 years to pay for the ships, which are being financed by a 130 million libor loan with the remainder of the funds coming from operations.

Yes as you present it the net present value of just signing the deal would create a Net present value of $1.60 per share on these 2 ships alone, let alone all the other vessels in their holdings. Based on current rates the annual growth in earnings should be parabolic in nature. Yet this stock sits for 8-10 per share. Your number of $5,000 per ship operating cost does not seem to square up with the cost of revenues on their ships which was 75 percent of revenue for 2007, on their cash flow statements there were no addbacks for non-cash charges, does your daily operating cost exclude other large fees?

 

[brewer12345]

Yes as you present it the net present value of just signing the deal would create a Net present value of $1.60 per share on these 2 ships alone, let alone all the other vessels in their holdings. Based on current rates the annual growth in earnings should be parabolic in nature. Yet this stock sits for 8-10 per share. Your number of $5,000 per ship operating cost does not seem to square up with the cost of revenues on their ships which was 75 percent of revenue for 2007, on their cash flow statements there were no addbacks for non-cash charges, does your daily operating cost exclude other large fees?

$5k/day is the cash operating cost to run these ships on a time charter. The charterer pays fuel, port charges and most everything else under time charters. NM's consolidated financials reflect a whole host of other things that are not indicative of the marginal cost of running a single capesize. If you really care, I can go into details, but to cut to the chase, go look at the most recent presentation on NM's website and they will quite clearly indicate how much it costs them per day to run a ship that they own.

 

[brewer12345]

Oh yeah, one other thing re: your comment on earnings growth being parabolic. I estimate that reported EPS will roughly double between 2009 and 2010, assuming time charter rates do not crater and stay depressed. Of course, if that is the case a huge number of elderly ships will get scrapped, paving the way for a rebound in rates.

 

[Brat]

From Comments, WSJ Law Blog: Law Blog - WSJ.com : Meltdown Report: Bear and WaMu, Oh My! Short-Sellers on the Run

WAMU’s a survivor…There are many worldwide banking institutions that wish they had $50b available liquidity. Sam need not worry ’bout WAMU; Paulson and company need to strengthen their house

Comment by Russell - September 19, 2008 at 12:36 pm
So, will will the spawn of Cuomo run for Gov or Senator?

Comment by so - September 19, 2008 at 12:45 pm

It’s not just the financials. Look at DRY Shipping Inc. DRYS on NYSE. It earned $19.99 and it’s selling for $54 or 2.7 x earnings. It’s projected 12/08 price is $180 to $220. Short sellers have dumped 10 mil shares of its 40 mil outstanding, for no reason. Andy Cuomo where are you?

Comment by DRYS selling for 2.7xearnings. P/E=2.7. H-e-l-p !! -

 

[al_bundy]

did a few stock screens this weekend and NM came up in my under $10 list, very nice chart as well. will probably check the financials tonight. i think we have a few days for the market to digest recent gains

 

[Art G]

did a few stock screens this weekend and NM came up in my under $10 list, very nice chart as well. will probably check the financials tonight. i think we have a few days for the market to digest recent gains

I'm kind of curious as to what you liked about the chart?

 

[al_bundy]

pull up a 3 year chart and you will see the MACD trend up since January while it made a new low last week

and the stochastic lows are trending up since july while it lost half it's value

 

[Art G]

My chart shows it as only being around since 2/07, and I show it breaking support. We are talking about NM, right?
I much prefer the chart of FRO. JMO

 

[al_bundy]

FRO the MACD is making new lows while the stock price is trending higher

NM is not the best, but at least the MACD is starting to trend up again

i'll have to look in my book to doublecheck

financials of NM look a lot better too

 

[Art G]

OK, I'll watch it.

 

[al_bundy]

not the best chart and the 3 year weekly is not very good either but probably OK for a nibble

i'm using the poster kids of the last bull market as examples for any buying. after i run my screens and find stocks i check the charts and compare them to the charts of AAPL, SNDK, WDC, ADBE from 2002-2003. APPL being the best example