Globus Maritime Limited (NASDAQ: GLBS) is a dry bulk shipping company. The company provides international marine transportation services for iron ore, coal, grain, steel products, cement, alumina, and other dry bulk cargoes. Through wholly-owned subsidiaries, Globus owns and operates a fleet of five dry bulk carriers.
The company’s stated objective is to grow its fleet through selective acquisitions of modern vessels that will yield a competitive return on equity and will be accretive to both earnings and cash flow based on anticipated market shipping rates. Globus was formed in 2006 and operates out of Athens, Greece.
Globus owns and operates a fleet of five dry bulk carriers which are managed by Globus Shipmanagement Corp, the company’s internal commercial and technical management group. As of June 30, 2017, all Globus vessels were operating on short-term time charters. The company’s vessels consist of the following:
|Vessel||Year Built||Yard||Type||Month/Year Delivered||DWT|
|Moon Globe||2005||Hudong-Zhonghua||Panamax||June 2011||74,432|
|Sun Globe||2007||Tsuneishi Cebu||Supramax||Sept 2011||58,790|
|River Globe||2007||Yangzhou Dayang||Supramax||Dec 2007||53,627|
|Sky Globe||2009||Taizhou Kouan||Supramax||May 2010||56,855|
|Star Globe||2010||Taizhou Kouan||Supramax||May 2010||56,867|
As shown above, the fleet includes four Supramax vessels and one Panamax vessel with an aggregate carrying capacity of 300,571 DWT. As of June 30, 2017, the weighted average age of Globus’ fleet was 9.3 years.
A recently published report from global shipping consultancy Drewry Projects, notes that dry bulk shipping rates may struggle in the short-term. In order to counter pollution caused by high coal consumption, the Chinese government is planning to cut steel production from November 2017 to March 2018 by as much as 50 percent (or approximately 40 million tons). Although the actual reduction may be lower, the decreased demand for iron ore is expected to weigh on dry bulk charter rates through the second quarter of next year.
Thereafter, Drewry analyst Rahul Sharan expects that steel production will expand once the production limits have been lifted. Ongoing construction and infrastructure projects should help maintain a healthy demand for steel, and by extension, high-quality imported iron ore. There is also potential upside for dry bulk shipping from growing grain consumption in African and Asian countries.
With respect to supply, dry bulk shipping capacity is expected to grow at a moderate pace. Although improving charter rates could boost new ship construction, International Maritime Organization regulations make it more likely that a large portion of new orders will replace existing capacity.
- On September 27, 2017, an investor holding warrants issued in connection with a private placement transaction from last February exercised its right to purchase 500,000 shares at a price of $1.60 per share (above the prevailing market price of $0.95 per share), yielding gross proceeds of $800,000.
- On October 19, 2017, the company completed a private placement transaction that yielded gross proceeds of $2.5 million. United Capital Investments Corp. will receive 2.5 million shares of common stock, and warrants to purchase 12.5 million shares of common stock at a price of $1.60 per share. United is led by Victor Restis, who has experience in the shipping sector and operates a fleet of approximately 40 vessels.
First Half / Second Quarter Earnings
In the quarter ended June 30, 2017, Globus reported revenue of $3.6 million, a 72 percent increase from the same period one year ago. Furthermore, revenue from the first half of 2017 increased 63 percent year-over-year to $6.3 million. Globus’ CEO, Athanasios Feidakis, noted that the recovery of dry bulk rates in recent months allowed the company to receive higher charter rates than in 2016.
Operating expenses for the second quarter totaled $4.4 million, approximately flat from the second quarter of 2017, while interest expense fell slightly. Accordingly, the company reported a net loss of $1.4 million ($0.05 per share), as compared to a net loss of $2.9 million ($1.12 per share) in the second quarter of 2016. However, we note that the company reported positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for both the first half and second quarter of 2017, totaling $0.3 million and $0.7 million, respectively.
Net cash used in operating activities in the first half of 2017 fell more than 60 percent year-over-year, although the second quarter cash burn rate was only slightly lower than the same period one year ago. At June 30, 2017, the company reported a cash balance of $0.8 million. In the first half of 2017, the company reduced long-term debt by approximately $20 million to $44 million, yielding shareholders’ equity of $42 million. Accordingly, Globus’ debt-to-equity ratio is 1.05.
As of November 8, 2017, shares of Globus closed at $1.16 after losing nearly 40 percent on the day, yielding a market capitalization of approximately $40 million. This came after shares hit a high of $2.26 the day before, closing the session at $1.88. The company’s stock price has been highly correlated with other dry bulk shippers (DRYS, DCIX, TOPS, SHIP), which can be quite volatile.
At the start of 2017, Globus traded as high as $11.87, but has fallen steadily since then due to ongoing shareholder dilution. We also note that the number of shares outstanding at June 30, 2017, was 27.6 million, as compared to 2.6 million shares at December 31, 2016.
- Changes in dry bulk shipping rates;
- Exercise of warrants by private investors and affiliated entities;
- Changes in the operational performance of the company; and
- New acquisitions and divestitures.
- As noted above, there is significant potential for shareholder dilution;
- Although the company recently raised new cash, reserves are relatively low;
- The company’s stock price is highly volatile and subject to speculation; and
- The company has previously failed to meet the minimum requirements for NASDAQ listing, and negative price movements could lead to further deficiencies.
Globus, along with other dry bulk shippers, popped briefly before returning those gains shortly after. These stocks have tended to move in tandem, and will likely continue doing so as traders exploit short-term opportunities in these thinly traded stocks.
The bigger picture is that dry bulk shipping rates could regain strength in the middle of next year, provided shipping capacity does not expand significantly. Recent revenue and profitability gains at Globus are encouraging, but a heavy debt load and low cash reserves are ongoing problems.
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 DWT or deadweight tonnage refers to the mass that a vessel can safely carry. This figure includes cargo, fuel, crew, and other supplies.