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Teacherman1 (48.75)

Green Grass in the Summer Heat

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July 02, 2011 – Comments (5) | RELATED TICKERS: DCIX

As they say on the T.V. - Breaking news.

Wanted to get this blog in over the weekend as a "heads up" for those who are looking for a real opportunity in this confusing market. Haven't had time to get it in the form I would like, but if you are willing to do your research, I think you will find this to be a great investment, either for shorter term gains or as a longer term dividend hold.

I am refering to Diana Containership DCIX, which was a spin off from Diana Shipping in early 2010.

I realize that if you simply look at the stock movement in the last month or so, it will look like a "falling knife", but it is anything but.

When it was spun off, it had a value in the $12 range, and stayed in that range up until they announced a massive new share offering equal to about 4 times the size of the existing shares. Anyone who was holding at that time probably has a bad taste in their mouth, as it fell to the $6 range almost immediately.

In this case, this turns out to be a great opportunity for new investors, and even for those who were already holding if they buy more.

While all of this was going on, it was virtually impossible to find their website to get information on exactly what was happening, but it finally surfaced (even though Yahoo still does not show it in their profile section).

It is http://www.dcontainerships.com/

If you go to their website and look under the sec filings for the annual report, and are willing to wade through it, you can get a lot of information ( including a good feel for where they are now after the new stock offering ).

The first SEC filing on the list is very long and has more information than a human being should ever have to read, but it has some "nuggets" buried in it that are very encouraging.

They took in just over $121M. They paid off all debt. They have 5 ships paid for. These are mid-size vessels, of which 2 are new builds in 2010, and the other three are older ones. All are on time charters (mostly with Maresk) through 2012 and 2013. Charter rates are in the $20,000 to $21,000 range.

They intend to pay a dividend equal to 70% of available cash from operations.

The first dividend will be paid in August, but will not be as great as later ones, since it will be for a period when they had fewer ships at work for a shorter time then a full quarter. The November dividend will be more normalized.

They do intend to acquire more vessels ( and may issue more shares as well as incur debt to pay for them ), but as of now, their balance sheet will be very strong.

The people running it are also running Diana Shipping (which has a significant number of shares ), so Diana Shipping may start paying some dividends again, from the dividends they receive. Diana Shipping paid the $7.50 for their shares ($20M).

I don't have the time to do a pro-forma right now, but if someone wants to take the time and make the effort, it would be very worthwhile for a lot of people here.

The new shares were purchased at $7.50 each, including those purchased by Diana Shipping, so this price is a great place to jump in.

Has been upgrade to buy and outperform by several analysts, and has a target price of $11.50.

JMO and worth exactly what I am charging for it.

Have to go pick up my wife from work, since she is still recovering from a foot operation and can not drive yet, but thought this was something I needed to share.

 Have a great holiday.

5 Comments – Post Your Own

#1) On July 02, 2011 at 10:13 PM, HarryCarysGhost (99.78) wrote:

They intend to pay a dividend equal to 70% of available cash from operations.

Teacherman, that's usually a red flag in my book.

Are you advocating this as a short term trade (which I may do ; )
or Long term?

Have a nice holiday.

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#2) On July 03, 2011 at 10:10 AM, Teacherman1 (48.75) wrote:

Harry 

Not sure why you see that as a "red flag". Available cash would be what is available after paying expenses and providing for working capital, not 70% of the cash they take in.

If there is something I am missing, please feel free to point it out. It will certainly not hurt my feelings.

With the current charters on the 5 vessels they now have, they would have revenue of about $36M per year before expenses, and at this point have no debt.

When they buy more vessels, they will likely incur more debt, but will also increase their revenue.

I believe this company was set up to provide cash flow to Diana Shipping ( and of course the other stock holders ), in much the same way that NMM does for NM.

I think a look at Diana Shipping will show you how conservatively these people have been operating in the past.

Diana Shipping has a great balance sheet, and in the past paid a good dividend, but the only reason I got out of them, was they stopped paying their dividend.

To answer your question, I think it would work either way.

Right now ( at least as of last week ), you could buy the stock at just over $7 per share. I expect that shortly it will increase to the $8 to $9 level, so there would be a pretty good short term gain.

One reason this opportunity has popped up, is that the stock took such a big drop after the announcement that they were issuing the new shares, and then there was a lack of available information on where that was, and what they were doing.

You could not even find their web site until a couple of days ago.

As a longer term hold ( assuming you buy at the right price ), you would likely get a good upside, plus dividend.

I don't have a crystal ball, so you would have to do your own DD, but I think this one, at this moment in time, is a very good buy.

I am not trying to hype this stock, but just to point out what I see to be as a "buying window", for those who might be interested.

I know there are a lot of people who want nothing to do with shipping companies at all, and I respect that.

JMO and worth exactly what I am charging for it.

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#3) On July 03, 2011 at 10:34 AM, HarryCarysGhost (99.78) wrote:

Thanks Teacherman,

Your absoultley correct in that I made the mistake of seeing that as 70% of the cash they take in. That was my cusory glance over of the company hence the red flag.

I still need to do more homework.

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#4) On October 05, 2011 at 10:33 PM, shamapant (82.26) wrote:

I don't quite understand WHY diana containerships was spun off? and how will the terrible market environment affect them? Why did DSX spin it off only partially? Just trying to get a good understanding.

 

Thanks,

Shamapant 

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#5) On October 06, 2011 at 9:44 AM, Teacherman1 (48.75) wrote:

It was not a partial spinoff. It is a completely "stand alone company" in which DSX owns some shares.

Since DSX is a "bulk shipper", and DCIX is a "container" shipper, they are not in the same market.

The primary reason for the "spin off" was to raise additional capital through the issuance of a lot of new shares. Up until then, DSX was financing them and they wanted to turn it into a source of income, rather than a drain on income.

When you are refering to the "market environment", I am not sure if you are talking about the shipping environment, or the stock market.

If the stock market, their shares should rise when the Q3 results are released. How much will depend on how much they made in Q3 and how much of a dividend they pay for this quarter.

They have a very strong cash position, basically no debt, and a very strong balance sheet. They have "profitable" charters on all of their existing ships that run for the next couple of years, with a strong charterer, so at least for that time, they should be good.

They should have price appreciation in the stock, and will pay a fairly good dividend.

The market for container ships is stronger than for dry bulk, and for tankers at this time.

It is not necessarily a buy and hold forever, because any market can turn, but for now, they are very solid.

All things being even (which they seldom are), the price of the stock should go up to the $8 to $9 dollar range, but it may go up less this first time around, depending on the amount they pay out for the dividend and the general mood of the market about the world economy.

If there is something else you want to know, or have clarified, just let me know.

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