Star Bulk Carriers Corp. (Nasdaq: SBLK), Star Bulk is a global shipping company providing worldwide seaborne transportation solutions in the dry bulk sector. Star Bulk’s vessels transport major bulks, which include iron ore, coal and grain, and minor bulks, which include bauxite, fertilizers and steel products.
On November 20th, the company announced results for the quarter ended September 30, 2017, reporting $63.0 million in Net TCE Revenues, $18.1 million in operating cash flow, $15.7 million in free cash flow and a total cash position of $249 million. The cash flow generation of Q3 2017 will allow SBLK to repay approximately $4.8 million of debt and capital lease obligations through the cash sweep mechanism.
The company’s operating and market risk profile continues to remain strong and has consistently outperformed industry benchmarks. The Star Bulk fleet is excellently situated, and it is one of the most significant US listed dry bulk operators with 74 ships on a fully delivered basis. From a peer comparison perspective, only Golden Ocean has more vessels and more cargo capacity. This large fleet provides excellent economies of scale to the company.
Furthermore, the company continues to leverage on its operational strengths including, in-house technical and commercial management for all vessels, which allows it to manage its costs efficiently and maintain its position as Low-cost operator with industry-leading OPEX and SG&A expenses.
Moreover, the company has the highest corporate governance ranking amongst drybulk peers. Bulk shipping firms are infamous for their bad corporate governance, but SBLK stands out to be ahead of the pack here.
Due to its superior fleet composition, low cost operating structure, comfortable liquidity/financial flexibility and sound corporate governance practices, SBLK is considered as one of the premium bulk company (relative to its peers), and it is currently trading at a non-premium valuation. Analysts have placed a $13.80 price target on Star Bulk Carriers Corp., suggesting above ~40% gain from the recent close.
A few weeks ago, SBLK announced the launch of a new subsidiary Star Logistics Management S.A.
Star Logistics will focus on servicing the end user by connecting origination and destination of dry bulk commodities. The move is expected to further expand the commercial capability of Star Bulk through additional commercial expertise and advanced tools on the Kamsarmax and geared bulk carriers. Moreover, it will provide the Company with access to considerable cargo flow and market information.
About the company: Star Bulk Carriers is a bulk shipping company with 71 active bulk vessels and three newbuilds to be delivered to it over the next couple of quarters. The fleet has a total capacity of 8.1 million dwt, including Newcastlemax, Capesize, Post Panamax, Kamsarmax, Panamax, Ultramax and Supramax vessels with carrying capacities between 52k dwt and 210k Dwt.
Star Bulk was incorporated in the Marshall Islands on December 13, 2006, and maintains executive offices in Athens, Greece. Its common stock trades on the Nasdaq Global Select Market under the symbol “SBLK.”
Fleet Update: On a fully delivered basis, SBLK’ fleet will consist of 74 vessels with 8.1 million dwt with average age of 7.8 years (1)
Industry Supply/Demand Update:
- Asset values have rebounded from multi-year lows but remain at historically low levels
- Low fleet growth anticipated from record low contracting during 2016/2017 and inflated demolition activity due to new environmental regulations
- 2017 trade growth has rebounded to 4.0% and expected to remain firm on the back of healthy global economic growth
- Market potential and offtake drivers: Trade growth expected to further improve towards end of 2017
- Global recovery of commodity prices and profit margins, World steel production up +5.0% during first half 2017
- Healthy steel consumption from China infrastructure & real estate on the back of 2016 stimuli and destocking.
- China substitution of scrap with iron ore for higher quality steel, China first half pig iron production up +5.0% y-o-y
- Healthy Pacific demand for high-grade iron ore mainly produced in Brazil to boost ton-miles. New SD11 mine is gradually coming into the stream during 2017-19 and Samarco recovery expected during 2018.
- China total power generation up 7.0% during the first half of 2017. Underperformance of hydropower and thermal coal stocks at power plants
- Strong grains consumption and healthy crops boosting exports
- Global minor bulk growth recovery. West African bauxite ton-mile generation, ASEAN, and India infrastructure development acceleration
3rd Quarter 2017 Financial Results:
Revenue and Profitability:
- For the third quarter of 2017, total net voyage revenues were $63.0 million, compared to $43.7 million for the third quarter of 2016. This increase was primarily driven by the rise in charter hire rates during the third quarter of 2017, which led to a TCE rate of $9,619 compared to a TCE rate of $6,885 for the third quarter of 2016, representing a 40% increase, as well as the slight increase in the average number of vessels in SBLK’s fleet during the third quarter of 2017 of 70.7 compared to 69.5 during the third quarter of 2016.
- Net loss for the third quarter of 2017 was $7.4 million, or $0.12 loss per share, basic and diluted. Net loss for the third quarter of 2016 was $39.4 million, or $0.86 loss per share.
Liquidity and financial flexibility:
- Total cash of ~$245.4 million, one of the highest cash balances amongst dry bulk peers
- Low operating and G&A cost v Fleet wide cash breakeven rates at ~$7,600 per day
- Minimal equity CapEx requirements going forward
- Successfully raised $103.0 million of new equity over the last 12 months
- Pushed back debt repayments of $223.9 million (for a period starting June 1st, 2016 and ending June 30th,2018)
Key risk factors and potential stock drivers:
The company’s outlook over the long term is significantly dependent on the overall economic situations and various macro factors.
In fact, the bulk shipping sector went through 7-8 muted years in the past, due to massive over ordering of ships during the booming years before. Therefore, improvement in macro factors would continue to drive the prospects of the company.
Notwithstanding its comfortable liquidity position as on date, the company continues to remain highly levered, and if the bulk shipping becomes heavily cash flow negative again, then a highly leveraged entity like SBLK is likely to suffer more in comparison to its lesser geared peers.
SBLK’s business is competitive in nature. If the company is not able to maintain or improve its market share, its business could suffer.
- On Monday, November 27th, 2017, SBLK was at $9.82 on volume of 252K shares exchanging hands. Market capitalization is $625.49 million. The current RSI is 47.91
- In the past 52 weeks, shares of SBLK have traded as low as $4.63 and as high as $13.40
- At $9.82, shares of SBLK are trading below its 50-day moving average (MA) at $10.09 and below its 200-day moving average (MA) at $9.91.
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