The Best of Bulk Worlds

Now that Excel Maritime (NYSE: EXM  ) has merged with Quintana, the firm offers a blended approach to the dry bulk market. At first I was skeptical of the perceived benefits to Quintana shareholders, since Excel had deliberately sidestepped the spot market and toed the time-charter line. But with today's astronomical shipping rates, I imagine these shareholders have learned how to stop worrying and love the volatility.

It's not as though Excel is taking on a crazy amount of risk. Rates are about 75% fixed in the back half of 2008, and contracted revenue roughly covers fixed expenses through 2010. In addition to a fairly aggressive post-merger debt paydown, Excel ought to throw off enough free cash flow to implement a robust dividend policy.

The pre-merger first-quarter results demonstrate just how lucrative it can be to ride the spot-market wave. Revenue roared 94% higher, and EBITDA margins were a monster 74% (up from 63% in Q1 of 2007). Earnings more than tripled.

Because it's hard to say how long the good times will last, Excel is sensibly fixing various vessels on very attractive long-term charters, such as a recent deal with Arcelor Mittal (NYSE: MT  ) . The time-charter market is so strong now that even DryShips (Nasdaq: DRYS  ) has recently fixed 14 of its vessels. I would expect Excel to seek further long-term commitments with other "blue chip" customers like BHP Billiton (NYSE: BHP  ) and Bunge (NYSE: BG  ) .

One interesting item in the conference call was that a new Korean shipyard, contracted to build several Capesize vessels for Excel, is facing some credit issues. Excel reports that this is a growing trend across emerging, "greenfield" shipyards throughout Asia. Excel's deliveries will be delayed by at least a year, or they may never get delivered at all. While this cramps future cash flow, the company hasn't made a down payment, and widespread delays would be very bullish for the dry bulk market, which faces a sizeable newbuild order book over the next few years.

Related Foolishness:

Excel is rated a full five stars in Motley Fool CAPS. If you're pleased with its work on the high seas, rate it “outperform” right here.

Fool contributor Toby Shute doesn't have a position in any company mentioned. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 648931, ~/Articles/ArticleHandler.aspx, 10/23/2014 6:17:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement