The shipping industry is undoubtedly cyclical, a feature that has kept an army of investors afloat due to many sudden recessions without any clear pattern of recovery.
Genco Shipping and Trading
(Ticker: GNK) There’s a compelling reason to enter now: the company has a clear balance sheet and a new dividend policy that smartly integrates payments with quarterly cash flows.
During this year’s market volatility, Genco’s stock has proven to be a harbinger of a storm. Shares rose 42% in 2022, but investors may still underestimate the company’s resilience.
Genco operates 44 dry-bulk vessels, mainly metal shells that are used to transport large quantities of goods, including an engine. Its ships varied in size: a variety of 17 large capacities, focused on carrying iron ore and coal, and 27 small ultramax and supramax vessels used to transport grain, cement, fertilizer and a variety of other bulk goods. Genco has a market value of $ 935 million and is located in New York.
The shipping industry has been in a difficult situation since the 2008-09 global financial crisis. It took a decade to work through the oversupply of ships which plagued the market and reduced shipping rates. Meanwhile, several shipping companies, including Genco, have gone bankrupt and the capacity of shipyards has dwindled.
Then in 2020 the Covid-19 epidemic hit. Lock-down increases the demand for physical products from consumers, and decreases the supply chain.
|Recent prices:||$ 22.20|
|Market Price (Mill):||$ 935|
|2022E Sales (Mills):||$ 473|
|2022E Net Income (Match):||$ 215|
|2022E P / E:||4.5|
E = guess
The Baltic Dry Index, which tracks dry-bulk shipping rates on nearly two dozen global routes, was down from 400 points in May 2020 to more than 5,500 by the fall of 2021.
The recent Covid-19 lockdown in China and the wet monsoon season in Brazil in particular have led to a decline in iron ore shipments, further destabilizing the index. The Baltic Dry recently traded around 3300.
Futures contracts on individual components of the index generally point to higher rates later this year, as China is expected to reopen, boosting demand for coal and iron ore imports and boosting Brazil’s iron ore exports. Genco, like all shippers, benefits from higher rates.
Even if demand declines, the limited supply of new dry-bulk vessels should be kept high. Dry-bulk shippers have lagged behind in placing new orders for the ship, placing additional orders in the last boom cycle and there is uncertainty surrounding a green future shipping fuel and propulsion system.
BTIG analyst Gregory Lewis said the results book orders for dry-bulk ships are close to their historical lows. Meaningful supply growth in dry bulk has not been on the card for years.
That supply-demand dynamic could sustain the boom time of dry-bulk shipping, even in the midst of a wider economic downturn.
Competitors quickly increased their dividends during last year’s flush, with Genco slightly increasing its payments as it repaid more than $ 250 million in debt.
“It’s a circular art; You can’t get away with that, “says HC Wainwright senior maritime analyst Magnus Fyhr. “[Genco] It is trying to come up with a model that will attract investors through the cycle. “
“In order for investors to really notice, you need to have a dividend that is not only attractive but also sustainable,” said CEO John Obensmith. “Not just for the next 12 months or 24 months, but for the next five years or 10 years.”
Due to Genco’s debt repayment-down and consequent low interest payments, the daily shipping costs have dropped drastically to about $ 8,100 fleetwide. Dry-bulk rival, co
Star Bulk career
Golden Ocean Group
Eagle bulk shipping
(EGLE), due to high interest and debt repayment costs, cost more than $ 10,000 per ship daily break-even.
Fyhr estimates that Genco’s ships could cost an average of about 28 28,000 per day this year.
Genco has announced the payment of its first full dividend under its new formula: operating cash flow minus capital expenditure, debt repayment, and an additional cash reserve. The first-quarter dividend payable this week will be 79 cents per share, up from five cents a year earlier. Maintaining that rate would give Genco a 14% dividend on its recent 22.20. This is probably close to a peak-cycle yield, but the new strategy means that Genco will continue to pay some kind of dividend even in the recession.
An increase in shipping rates later this year could also reverse the payout: Fyhr’s model Genco’s যোগ্য 1,000 increase in daily shipping rate, adding 37 cents per share to the distributable cash flow.
“Investors have told cyclical companies that they want to see cash,” said Lewis of BTIG.
For now, Genco is a show-me story. The company needs to show that its new dividend method works through a shipping cycle, and that the stock deserves to be valued in relation to its payout or its earning power – not with the net asset value of its fleet, as is common. In the industry.
Both Lewis and Fyhr have buy ratings on Genco stock, with price targets of $ 28 and $ 30, 25% to 35% from current levels, respectively.
“The model has not yet been tested; It did not go through a recession, “said Fyhr. When that happens, “I think Genco is in a much better position to deal with it.”
Write Nicholas Jasinski at [email protected]