A Big Upgrade for Paragon Shipping

• Report this Comment On September 30, 2009, at 10:30 AM, imacg5 wrote:

  It's too bad the collective wisdom of Caps don't do research.

  Then they might realize what a lousy quarter this one will be with 20 million more shares, to 48 million, and $8 million less dollars of revenue from reduced charters. They should also read up on how many new ships are being launched.

  Sorry, I don't want to be mean, but I just read a pitch where someone compared dry bulk to Fedex.

  This is a really transparent sector, the research is so easy.

• Report this Comment On September 30, 2009, at 1:02 PM, winomaster wrote:

  Sure, everyone knows the numbers on the third quarter are going to be ugly. But the stock price of these shippers turns on the BDI.

  People who are turning their back on these shipping stocks are focused on the present situation which is bleak. But the people who are buying the shippers are focused on the enevitable revival of these stocks. When that day comes, the big winners will be those who bought ships at todays bargain prices and shrugged off the reduced demand that exists for dry bottoms today

• Report this Comment On September 30, 2009, at 1:59 PM, imacg5 wrote:

  Well then you should be buying companies that actually will be in a position to make accretive purchases of ships, like DSX and NM.

  Paragon is like most of the others, they say they are looking to buy ships when they raise cash from dilution. But most of that cash is going to pay down debt. They have restricted cash for a reason. It is there to bring the collateral maintenance ratio in line with the bank requirements. Most loans require a 125% or more collateral to debt ratio, the appraised value of PRGN's 11 ships they have left is far below it's debt. That's where most of the cash will go. They may add a few ships, but what they add to earnings will be minimal, when held against a 75% increase in shares. (so far)

  Long term investor? Great, but I don't know anyone who wants to put up with dead money or lower portfolios while waiting. There are way too many ships coming, there will be a long wait for a higher BDI, and the companies with debt will have a tougher time. The BDI will not rise with the economy, unless the economy can outperform the 25% rise in the fleet over the next two years.

• Report this Comment On September 30, 2009, at 4:19 PM, winomaster wrote:

  I am in fact leaning toward NM. They seem intent on expanding their fleet under an interesting strategy. I'd like to read an in depth assessment of their prospects. I have some concerns. I have a suspicion their stock price is going to be flat-lined until the ships being aquired this year and next are paid off and their profits surge, being unburdened of those payments.(That is ten years off.)

  You refer to a 25% rise in the fleet over the next two years. I think that figure is inflated by Tanker new-build and an assumption that every ship ordered to date will actually be built. Word I have heard is that lots of orders are being canceled (perhaps with a penalty) and others are being pushed back.

• Report this Comment On September 30, 2009, at 6:39 PM, imacg5 wrote:

  Well NM just bought an Ultramax, and used $31 million in cash and $5 million in preferred stock, convertible at 10 dollars. No debt.

  But yes they have 11 Capes coming by the end of 2010, the financing has been secured the ships are chartered out at good rates and the Navios insures all their charters from default. Those charters will be very accretive to earnings. NM is one of the few bulkers that has rising projected earnings for 2010,

  The dry bulk fleet (no tankers or containers) was expected to grow 60% by 2013, but with cancellations, delays and scrapping, the people who track it are only willing to count the vessels that have confirmed deposits, financing, and in most cases keels that have been laid, at yards with proven deliveries. The people who track shipbuilding.

  www.drewrys.co.uk

  www.weberseas.com

  www.brs-paris.com

  www.cotzias.gr

  www.worldyards.com

  www.lloydslist.com

  www.fearnleys.com

  www.nilimar.com

  www.platou.com

  An example of how the progress is going at shipyards is, Vale ordered four new Capes recently and was only able to get one berth for delivery in 2010, the other three were scheduled for 2011.

  As for scrapping, because tankers and containerships are also being dumped, the scrappers have a buyers market, and tankers are the most profitable choice for them So bulker scrapping is not at a heavy pace yet. Highest in years, but not nearly the delivery of newbuilds.

• Report this Comment On September 30, 2009, at 9:35 PM, winomaster wrote:

  imacg5

  Thanks much for that list of sources for shipping information. I can tell you have been at this awhile, studying the industry. But I sense you are negative on the prospects for these shippers. Are you also negative on NM? So far they are the only shipper i see that is truely using the unsetteled market conditions to aggressivly expland their fleet. I see some companies talking about it. GNK is addig a few ships, but these were deals made before the meltdown so they are paying 120 million for a capesize, while NM is taking deliveries for a little over 70 million. GNK is going to spend all their cash on what is now an overpriced purchase.

  Incidently, I see NM saying that they may be required to sell some ships at market prices to their sister company Navios Partners (I think) It makes me wonder if NM stockholders are being put at a disadvantage with this agreement.

• Report this Comment On September 30, 2009, at 9:55 PM, winomaster wrote:

  imacg5

  you seem concerned about the current imbalance in supply/demand for dry bottoms. But I think you would agree that the demand side will improve soon enough. Supply increases (of shipping assets) in the current period are going to take place at astoundingly low prices. And ships added during 2009-11 are going to displace future shipbuilding. The real slowdown in ship building is going to occure as we come out of this slump and new buyers of shipping are going to have to pay full price for ships. In my view, the winners are going to be the guys who grow during this period while shipping can be bought cheap. The long term leases will assure they make a profit all thru over the next ten years. But when we fast forward ten years any near term oversupply of shipping assets will be history. The market will have reined in any oversupply and the bold will have the lowest average cost for their bottoms. The patient will inherit the earth.

• Report this Comment On September 30, 2009, at 10:32 PM, imacg5 wrote:

  I messed up the first link, it is www.drewry.co.uk

  I just think that outside of some brief jumps in the BDI, the rates will be stagnant due to the arrival of new ships. It will work itself out, but not as fast as people think. Look at TBSI, they have a very old fleet and they aren't scrapping any yet. OCNF says they are selling shares to buy new ships, but soon they will have 12 ships, 425 million shares outstanding, and a PPS of $1.38.

  EGLE has 25 ships, and 22 new ships coming, and the ships have good charters. They paid $40 million each, and the value today is $36 million, not bad. But they, along with so many, are in breach of loan covenants. The lenders can tell them to eliminate their dividend, restricted cash, and increased interest expense. Not to mention, they very often have to sell shares at a horrible time.

  EXM and DRYS spent money like sailors on shore leave, and the hangover is bad. EXM keeps claiming "Amortization of below market charters" as revenue, and the market finally caught on. DRYS has upside from the Drillrigs, but damn, George keeps stealing their money and the cost of the debt is a big drag. The revenue from 4 of 6 rigs won't start until 2011, but the costs are being felt now.

  NM does a great job, they have a lot of ships and many more coming, but even in good times, they have disappointed, and its a hard one to figure. It could be their costs from their ports and barge operations, or their dabbling in FFA's as a hedge.

  Diana is an incredibly transparent company, with a little work you can figure their earnings better than the analysts. They are conservative, but took advantage of the high rates. They sold shares at the right times and used the proceeds to buy ships with a good mix of cash and debt. They saw the disaster coming and cut the dividend to save cash. And soon they will use that cash to make accretive purchases. But, they will take a hit to earnings this quarter, so they can probably be bought cheaper.

  I love this sector, but I'll make money elsewhere, and come back and buy this after the bloodletting is over. Everyone says the market is 6 months ahead of the news, but I haven't seen that here, the FFA's are 6-12 months ahead of the market. and for the dry bulk sector, the market hasn't a clue. It's a transparent sector, if you know where to get your information, but ever since it was "discovered" the amount of misinformation out there is thick.

• Report this Comment On September 30, 2009, at 11:03 PM, imacg5 wrote:

  One last thing for you as far as the future. I'll play fast and loose with the numbers but they are close.

  Iron Ore and Coal account for 65% of the dry bulk trade, China is now using half the worlds ore that is transported by ship, at 500-600 mmt. per year.

  Vale is the largest producer of ore at 250 mmt. And Vale has now signed very lengthy contract with the biggest Japanese and Korean shippers to handle a portion of it's ore, and the rest they intend to ship on their own fleet. Vales reaction to the high cost of shipping in 2007-8, was to buy Capes and VLOC's. This year they bought 20, mostly older tonnage. And they ordered new Capes and 12 new VLOC's, each hold 400,00 dwt. Lula is pressuring them to "Buy Brazilian", so they probably will add some homegrown. They will essentially be self sufficient and that will leave the independents without a huge customer. I can't emphasize enough, the long trip from Brazil to China was a huge asset to the independent dry bulk companies.

  Chinese steel makers and Vale were hurt by the high cost of shipping, and it looks like they won't let it happen again. 20 year old Capes weren't scrapped, they were bought by these guys. And Tankers were converted to bulkers. The Bulk owners might have made a half-hearted attempt to cancel new ships, but these guys snapped up many of them. It will be different this time around. As you say, the winners will be the guys with the money to expand while the ships are cheap, no one has more money and motive, than the Chinese and Vale.

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