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Star Bulk Carriers Corp. (SBLK)
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Deutsche Bank analyst, Amit Mehrotra, SBLK comments this week:
SBLK 3Q WrapSBLK reported 3Q results, which were largely in line with expectations. As we highlighted here, SBLK reported record 3Q results, announcing a $1.25 per share dividend for the quarter, bringing the year-to-date dividends to $2.25. The dividends reflect an average rate of $23,000 per day through 3Q. Based on the booked days for 4Q and current spot rates, we expect higher EBITDA and increase to the dividend payout. As such, we are revising our 4Q EBITDA estimate to $318M. We are also expecting a stronger 2022 (Q1’21 was relatively weak) and we are revising our 2022 estimates. Based on the dry bulk demand and supply dynamics, we raise our 2022 EBITDA estimate to $850M. Maintain Buy.
ZAKS has some great forecasts/reviews for SBLK. Let's hope it helps the stock pop. ZAKS rating of 2.
During the Q3 conference call management indicated that they were expecring rates to turn up over the short term. My expectation is that they will take rising rates as an opportunity to add to the previously reported 17% of rate fixtures for Q1 already reported. Since 71% of Q4 is set at a great rate the current rise in rates will help the blend. While I was a little skeptical when some thought a $1.75-$2.00 dividend was possible for Q4, current rising rates are helping that case. I'm hopeful that management will put out a press release prior to years end giving an update on fixed rates for Q4 and Q1. Management has been doing a great job fixing rates thus far and I don't think this has gone unnoticed by investors.
Baltic Dry Index +0.96% to 3,047
Capesixe Index -0.42% to $37,023
Baltic Dry Index +4.76% to 3,018
Capesixe Index +8.21% to $37,181
Why the big sell off today across the board? Pretty good news day I thought (not that this is relevant with shipping equites as we all know)
But the bulkers are down 3x the market averages. Jeesh. No real reason as I can see.
Given that the decline in December Capesize 5TC futures has flattened out at around $30K/day and in Panamax 4TC futures at $22K/day, let's say that their combined TCE for Q4 is going to be $25K/day. Since SBLK has locked in 71% of Q4 at $38825/day, the expected TCE in Q4 is something like 0.71*38250 + 0.29*25 = $34.5K/day, so if we had to predict Q4 cash from operations, a 10% increase relative to Q3 is a good starting point, which gives us around $275m.
To calculate the expected dividend for Q4, we'll start by adding $275m to $243m left over from Q2 (shown on slide 5 of their earnings presentation), then will subtract $53m for debt repayment and capex (if they stay the same as in Q3, as shown on Slide 4), then will subtract the minimum cash reserve of $2.1M*128 = $269m, and we'll be left with 275+243-53-269 = 196m. Dividing this by 102m shares, we get a dividend of around $1.92 per share. This is the base case. The management also mentioned in the earnings call transcript that they plan to sell a couple of ships to raise money for completing the share buyback, which will both decrease the minimum cash reserve and the number of shares by which the money is divided. If the buyback is completed in Q4, the dividend will be above $2.00 per share.
In reality, I expect SBLK to repay more debt in Q4 than in Q3, since $1.25/share dividend is plenty (more than 25% annual yield!). The bottom line is that the company will be doing BOTH great things: paying HUGE dividends AND reducing its debt (thus increasing NAV and expected share price, since many analysts are pricing SBLK off its NAV).
While it would be premature to break out the champagne todays action has the feel of a break out for the bulkers. SBLK's actions may have had a hand in changing the sentiment because they were early in paying out a generous dividend and went on record in their committment to continue it. One or two companies committing to share with stockholders might go unnoticed but many of the bulkers have joined the dividend club. Let's hope that this activity catches the eye of a new group of investors and that they check us out and like what they see. Most, if not all of the bulkers are undervalued given their metrics. The sector has been in the dog house for such a long period of time so market rotation is long overdue. I realize that one good day doesn't make a rally but I just have a good feeling about the entire sector. If today was a one day event, that's OK, I just had a nice day. Time will tell and as always, Mr Market is the final arbiter.
One of the traders (Jenny) on the CNBC Halftime Show said she took a position in SBLK. She said the outlook was good if management could deliver. Also talked about the dividend. The stock has popped in volume since her recommendation.
will SBLK still likely pay div if stock price drops a lot more due to Omicrom? how will freight co's be affected?
Been a few bulk trades reported at the end of the day a few times since earnings (roughly 500k shares and ~$10 mm buys). Over the last two weeks, believe there have been block trades worth ~$25mm for 1.25mm shares...wonder if it's the company buying back stock. I hope so.
It's the weekend, no market, little sector news. No need to read any further if you're seeking hard facts and not willing to speculate with other longs on what is the best use of the considerable cash that the company is generating. I believe that managements objctive is identical to we shareholders, namely, seeking total return. Some believe that the focus should be on debt reduction, some on buy backs, some on fleet expansion and others think that managements focus on a generous dividend is mistaken. The argument against the generous dividend seems logical, namely, the market hasn;t rewarded the generous policy so it must be a failure. I say, It's much too soon to make that judgement because these generous dividends are a fairly recent phenomenom. Consider the long history of shipping. There was a time when the sector had a well earned reputation of being a good reliable source of interest income. Stocks were valued significantly higher than currently, largely because of generous dividends. That's a decade or more in the past. Skepticism has had a long time to ferment, thus, low valuations despite the recent over the top performance. Others are not yet convinced that the sector's improvement is not transitory so we early arrivers may have to be patient. There are some that believe that the sector has failed because of an unsound business model, specifically, the paying out of generous dividends were unsustainable. Perhaps they are right but I disagree. It is my belief that the failure was caused by the over ordering of unneeded vessels, (Supply-Demand). Looking at the rate fluctuation shoul at least give some credence to my position. Getting back to SBLK and managements tactics. The generous dividend approach needs more time before judging it a failure because of the investment community's distrust of the sector. This distrust may abate sooner rather than later because many other bulkers are also sharply increasing dividends. We just have to give it a little more time. Our management team is fully on board with this policy and have been so emphatic about it that some may have taken offense at the language used in expressing this entusiasm. Also, we're not a one trick pony in that we're retiring debt early and have a decent share buy back set aside in place with an articulated plan on how to increase it. With 128 vessels, we're the largest fleet so we really don't need to increase the fleet but management has expressed a willingness to grow if a deal presents itself that would enhance we shareholders. I saved the best for last. I find this management team to be very candid and honest in setting out goals and keeping shareholders abreast on how they intend to reach them. When questioned by analysts, they give complete answers, frequently giving more detail than anticipated. While I like and trust management, I always closely scrutinize words with deeds.
If I have it wrong, shoot me down, I won't take it personally.
SB should be thinking dividend on common and buyback some preferred. Anybody in SB stock probably noticed $SBLK. They are getting good press in IBD, etc., too. Mostly good news in dry bulk now.
Baltic Dry Index +4.12% to 2,881
Capesixe Index +6.07% to $34,360
Takeaway's from the Q3 conference call have previously been posted but these are a few that haven't been mentioned. The net income of $224.7 that led to the $2.20 earnings per share was made possible by the $30,626 TCE realized for the quarter. The company announced that they locked in 71 per cent of the fleet for Q4 at $ 38,250 per vessel. That huge number guarantees another extremely proifable quarter when Q 4 is reported.. For Q1 17 % of the fleet has been hedged at $32,000 per vessel and the company intends to increase this number over the next several weeks because they expect some recovery in rates over the short term. They spent about $10M on buy backs in the $22 area and it seems that they will spend the remaining $40M of the $50M set aside in short order. If additional funds are needed for additional buy backs it will be funded by older vessel sales.
For those that have the time or inclination I highly recommend listening to the cc or reading the transcript. Management does a great job in disemanating info and you will get a feel for how high they are on the market.
From the EGLE conference call, vessel values increased 110 per cent over the last year based on the sale of 890 vessels sold during that period of time.
Next year I would like to see free cash flow directed:
1) mostly to share buybacks,
2) retain in cash---special fund allocated for debt service
Star Bulk Carriers (SBLK) is one such stock that our proprietary system currently recommends. The company not only has a favorable Growth Score, but also carries a top Zacks Rank
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