Evercore ISI analyst Jon Chappell forecasts fleet expansion, upturn for owner.
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| A Genco bulker. Photo: Genco Shipping & Trading |
Evercore ISI analyst Jon Chappell expects the New York-listed bulker player to expand its fleet of 60 vessels on the back of a solid ledger and a recovery in the dry-bulk market.
He says the company has emerged from the dry-bulk shipping downturn with a recapitalised balance sheet and the strongest capital structure of its listed peers.
As a result, the firm has the liquidity to grow and modernize its fleet amid asset values below historical averages, he says.
"Moreover, with substantial operating leverage to the ongoing improvement in dry bulk spot rates that we forecast, cash flow is expected to accelerate adding further to GNK's war chest," Chappell wrote in a 28-page analysis initiating coverage on Genco.
Chappell gives Genco an "outperform" rating among its peers and envisions its shares reaching $15 within the next 12 months.
Shares of the company, which on 1 November posted a $31.2m loss for the third quarter, including an $18.7m impairment hit, gained 9% to $11.62 in late-morning trading.
Based on current dry bulk rate estimates, Chappell says he expects Genco's will swing from a $44m operating deficit in 2016 to positive $54.3m this year, with an additional increase of 69% to $91.8m forecast for 2018.
As a result, he says Genco is expected to post a loss per share of $0.42 for next year, a huge improvement from the $1.39 loss per share for this year.
If spot rates rise by $1,000 per day across all asset classes, he says Genco should come into the black with earnings per share of $0.14 and operating profit better of by 22% for 2018.
As of 1 November, 40 of Genco's ships were either trading on the spot market or through contracts.
Recovery is underway
Chappell expects the global demand for dry bulk, including iron ore, grain, coal and minor bulk, to increase 4% to 5,081 tons per mile this year and 3% to 5,233 tons per mile next year."The demand side of the equation has been surprising to the upside for much of the last 18 months, and as we update our forecasts through next year the upside trends seem set to continue," he wrote.
"Iron ore is still the most important commodity to track, and the ton-mile demand outlook has been improving of late."
Spot rates are expected to experience an upswing next year. He forecasts a 14% climb to $16,000 per day for capesizes and an 5% rise for panamaxes to $11,500.
A 5% slide is expected, however, for supramaxes to $9,000 and handymaxes to $7,900.
He says the pace of ordering newbuildings has picked up over the last two quarters yet year-to-date ordering is still down by 42% versus 2015 and by 75% from 2014.
"Most importantly, deliveries of previously ordered ships are still outpacing new orders, meaning that the total orderbook as a percentage of the on-the-water fleet is continuing to decline," he said.