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Proprietary Data Insights Financial Pros’ Top Ocean Shipping Stock Searches in the Last Month
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Financial Pros Don’t Realize Safe Bulkers is a Value Trap |
Value traps are companies that look cheap on paper yet never attract investors. Often, the company is in a long-term decline with little to no growth. That’s largely what we see with Safe Bulkers (SB), an ocean dry shipper that has seen its fortunes rise since the pandemic. Safe Bulkers generates profits and positive cash flow. Plus, it trades at just 5.8x earnings and 3.0x cash. The problem is shareholders never see a dime. Here’s why. Safe Bulkers’ Business Safe Bulkers operates a fleet of 45 dry bulk vessels with an average age of 10.6 years. This includes 12 new vessels delivered since 2019. Dry bulk shippers carry commodities such as grain and coal. They live and die by overall economic activity. Revenues come in two varieties: time and voyage charters. Time charters are contracts with a daily rate locked in for a specific time period. Voyage charters specify a rate per ton or lump sum for the total voyage
Source: Q3 2023 Earnings Report While the revenues aren’t broken down by time or voyage, the latest quarterly earnings report notes that 15 of the vessels were contracted at the spot market (<3 month contracts) while 32 were in time charter contracts (>3 month contracts) of which 11 were in contracts of more than 2 years. The average duration across the fleet is 0.7 years. Financials
Source: Stock Analysis Revenues blossomed in the wake of the pandemic as demand soared while shipping availability waned, with some shippers simply unable to operate while others struggled to turn around at congested ports. The massive delays at global ports are largely gone. However, shipping costs remain elevated, driven by inflation and other factors. That’s helped the company substantially improve margins and cash flow, which skyrocketed from around $50-$60 million a year to $218 million in 2021 and 2022 and has declined to $140 million in the last 12 months. However, management’s spending binge on new vessels has eaten up all that cash, although they did finally issue a special $0.50 dividend recently. The company also carries $367 million in net debt which is up from $276 million in 2021. Valuation
Source: Seeking Alpha Global shippers look cheap, whether you’re looking at Nordic American Tankers (NAT), which ships oil, or other dry bulk carriers like Golden Ocean (GOGL). Heck, Top Ships (TOPS) trades at less than 1x cash. However the fickle nature of this business makes it extremely difficult to justify a position in these companies based on one year’s worth of data. Put it this way…Safe Bulkers retained earnings, the amount of profits they’ve made is basically the same as it was in 2013. Growth
Source: Seeking Alpha The forward growth estimates don’t offer much confidence for dry bulk shippers. Oil transport appears to be doing well, as Nordic American and Top Ships forecast revenue growth. But the rest are expecting negative YoY topline moves. Interestingly, only two companies saw free-cash-flow growth over the 3-year period: Nordic American and Genco Shipping & Trading (GNK). This speaks to the value trap problem that’s inherent in the industry. Profitability
Source: Seeking Alpha Margins aren’t bad. But the returns on equity, assets, and capital are lousy, with the exception of Nordic American. Being profitable is great. But scalability isn’t easy or fast. Our Opinion 0/10 Marine shippers are a perpetual losing investment. We don’t like any of the companies in this sector and haven’t for a while. Margins aren’t enough to generate excess profits, leaving you with a business model that breaks even. This is a dead-money play that you should avoid. |
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