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Teacherman1 (57.62)

DCIX-Possible Pop on Earnings

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November 18, 2012 – Comments (1) | RELATED TICKERS: DCIX , DSX

DCIX has indicated that they will be releasing their Q3 report information prior to the market opening on Monday morning, the 19th of November, and I think there is a very good possiblilty for a surprise to the upside.

Investors have been focused on the fact that some of their "high rate" charters will be "rolling off" in early to mid 2013, and seem to have overlooked the fact that this is a "coming event", and has not happened yet.

They showed net earnings of about $2.3M for Q2, but that is a little misleading, since that is the result after a non-cash depreciation of about $3.5M. So cash flow is much better than the earnings would indicate, even though those were good in themselves.

They had revenue for Q2 of just over $14M, and a rough pro-forma indicates they should show an increase in revenue for Q3 of $2.5M to $3M, based on the charter rates for that period.

While the first high rate charter came down from $22,000 per day, to $7,500, that happend during the quarter, so they should have averaged about $11,000 for that vessel during Q3.

It is possible that Q4 could be even better, since they will have added another high rate charter for about half of the quarter.

The time to start getting concerned (assuming they are unable to re-charter the early to mid 2013 vessels coming off of high rates at reasonable rates) will be the 2013 Q2, or 2013 Q1, if you think that large holders might start dumping early.

With the new vessel they just got and chartered out at a high rate, they should still have revenue in the $12M to $14M range per quarter for 2013, even if they have to re-charter the ones rolling off, at "break even" rates.

They did issue more stock during the 3rd quarter, so the earning per share might drop some, but I expect it will still be in the $0.09 to $0.10 range, with positive cash flow in the $0.20 to $0.25 range.

They had earlier indicated that they would likely keep the $0.30 dividend for the 3rd quarter, but even if it is cut back, it will still be a fantastic yield.

Based on Friday's closing price of $5.52 per share, the yield would be 21+% at $0.30, 18+% at $0.25, and 15+% at $0.20.

I am not sure if the underwriters took the over allotment or not, so they would have received cash of $47M to $54M, of which they spent $30M on the new vessel, so their cash position should still be good, and their balance sheet strong.

They have virtually no debt, so I expect them to continue to be a good investment going forward, even if they have to settle for lower rate charters on some of the 2013 "charter roll offs". I see a worst case scenario of an average daily rate on their 10 vessels of $15,000 to $16,000 per day, and with a daily operating expense of about $8,000, they will still have a good profit. Just not enough to pay a $0.30 dividend.

Remember, since DSX holds about 4% to 5% of their stock, they will benefit from a higher dividend, which will allow them to continue to build up their own already awsome cash position, and to continue to add new vessels.

Since I did this mostly from memory, some of the numbers may be off a little, but they should be close.

There is always a chance that one or more of their charter counter parties could go bankrupt, or their vessels all get captured by pirates, but assuming a more likely course of events, this is a good investment for the next couple of years.

It will be interesting ( at least for me) to see how close my "seat of the pants proforma comes to matching their actual information.

They will be having a conference call around 9:00 ET on Monday the 19th, I believe.

JMO and worth exactly what I am charging for it.

1 Comments – Post Your Own

#1) On November 19, 2012 at 10:18 AM, Teacherman1 (57.49) wrote:

It looks like my "seat of the pants" proforma was off.:), but it did still  "pop".

A couple of things I missed was the commission paid to secure charters, which lowered the revenue amount.

There was also an increase in the daily operating rate per vessel.

The biggest thing I missed was forgetting about the $90M in long term debt they had to pay interest on.

Without these, per share earning would have been in the $0.07 to $0.08 range.

They are still paying the $0.30 dividend, and expect to continue to pay it for awhile.

I still like them for the intermediate term.

JMO and worth EXACTLY what I am charging for it.

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