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Teacherman1 (51.09)

The Ships are not Sinking.

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9

July 19, 2012 – Comments (6) | RELATED TICKERS: DCIX , DSX

Just a quick "heads up" on why DCIX shares are falling this morning.

They are issuing between 8M and 9M (depending on whether or not the underwrites decide to buy an "overage" allotment), at $6.25 per share.

This will be a dilution (to a certain extent) of the outstanding shares in the neighborhoold of 30% to 36%.

There are many investors who automatically sell when new shares are issued, so in the premarket, they were down to just over $6 per share. Don't know yet what they will be when the market opens.

The use of the proceeds of the new share issuance is for possible additional vessel acquisition, pay down on outstanding bank debt, and/or general coporate purposes.

They have not yet identified any specific additional vessels, and their current draw down on their credit line is $92M on a minimum line of $150M.

When it comes to the dilutive effect of new share issues, I always want to know the reason they are being issued. i.e. is the company losing money and needs additional cash to survive, or are they using it for "positive purposes". In this case I view this as "positive".

They will be issuing their Q2 earnings information on August 1, and they have previously stated that it is their intention to pay a quarterly dividend of $0.30 per share.

Their fundamentals are good, with significant debt to equity coverage, and solid cash flow and income for at least the next 18 months or so.

Now as to the reason for this posting at this time, I see this as an opportunity to get into this company at a 15% to 20% lower price than their recent values, or to add to your position if you are already in.

There is an announcement, and an SEC filing available on their website if you care to wade through it.

I will be following up (as time allows) with more detailed information as to why I really like their business model, and why their charter parties have an incentive to do these deals with them.

As always, do your own DD, and good luck if you decide to get in.

JMO and worth exactly what I am charging for it.

My apologies if I made typing errors in this post, but I wanted to get it out quickly.

6 Comments – Post Your Own

#1) On July 26, 2012 at 10:34 AM, broadwaynewyork (< 20) wrote:

Teacherman, a little confusing that TEU is currently selling at $6.31 and DCIX at $6.06 with DCIX having already advised their dividend will be increased to $.30 this next quarter, the same as TEU.

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#2) On July 26, 2012 at 11:39 AM, Teacherman1 (51.09) wrote:

DCIX is down because they are issuing new shares at $6.25.

They just went down a little farther than they should have, but not a lot of people really follow this company closely, or understand their model.

When a stock suddenly drops, and you don't know why, especially if it is a "Greek" shipping company, many people bail.

 In addition, a relativelly small group of investors have been active because the institutional investors are just sitting on the dividend, and a lot of the "active" investors are really just traders.

TEU got a kick because they recently did a deal like DCIX, so this made a number of people think they would be doing better going forward.

I am not at all concerned about DCIX, at least for the intermediate term, and I think when the offering is complete, and investors can see what they are actually doing, it will come back up.

In the meantime, at this price, the yield will be close to 20%, unless they have to reduce it back to $0.25, and then it will still be a great yield.

JMO and worth exactly what I am charging for it.

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#3) On July 26, 2012 at 11:55 AM, broadwaynewyork (< 20) wrote:

Thanks for your input.

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#4) On August 01, 2012 at 5:53 PM, shamapant (81.40) wrote:

Teacherman,

After the news today, I have to admit I'm abit frightened, the new rates they got for Centaurus look terrible. Thoughts?

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#5) On August 01, 2012 at 5:57 PM, shamapant (81.40) wrote:

Also,can't wait for future posts on them.

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#6) On August 05, 2012 at 8:14 PM, Teacherman1 (51.09) wrote:

Hi shamapant

Sorry I didn't see your post.

I didn't like the new rate for the Centaurus either, but remember, this was one of the two they bought new when they were spun off from DSX, and was not the kind of deal they have been doing under their new model.

If and when they can find a new deal like the other 7 they did after the spin off, it will be at a much higher rate. They are in effect financing the companies they are buying the vessels from, under a buy and lease back scenario.

I think the new rate for the Centaurus will cover operating costs, and may even provide a small profit, and it is for a fairly short term.

Knowing that the two "new build" vessels were going to be coming off charter is the reason I have been saying, this is a good investment for the next 12 to 18 months (was 18 to 24), and not a long term, hold forever investment.

They still have a very strong balance sheet, and with the new share issue, which I expect to be used primarily to pay down their bank debt, they will have very little debt outstanding.

This recharter rate may affect their dividend payout and cause them to lower it back to $0.25 from the $0.30, but that is still a good yield.

They need to be watched, but they are not  going to "tank", and will remain profitable for the foreseeable future.

The key is if they can find more deals like they have been doing, where they buy, lease back, and get longer term charters at good rates.

Right now, they don't have the cash to do more, so that is probably the reason for the new share issue. They will either pay down their credit line and have it available for new deals, or they will use the cash to do a new deal.

Will watch to see what they are planning.

I haven't added to my position, but haven't even thought about selling.

Hope you are doing well, and not getting "whacked" by these EuroPanic "shcitzo" market fluctuations.

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