Safe Bulkers (NYSE:SB)

CAPS Rating: 3 out of 5

Recs

3
Player Avatar TSIF (99.96) Submitted: 8/5/2011 10:27:38 AM : Outperform Start Price: $6.05 SB Score: -64.08

A shipper in this economy......no wonder those guys with the white jackets have been following me around lately.....

Safe Bulkers just can't get any traction the last month. The Share Price bounced off the $7 bottom for a nice 12% recover in early July only to drift back down again. Earnings were not kind to Safe Bulkers and the market dumped again this past Friday (7/22/11). In my own opinion, any earnings that cover expenses and dividends in this erratic shipping market are to be commended. The drybulk index has been extremely erratic and is also bouncing off a recent bottom that borders on unprofitability for even the leanest shippers. Safe Bulkers adds more confusion to valuation as it prepares to receive new ships over the next two years. The market is aware of the glut of ships in play and those on order. Many older ships have been scrapped and many orders cancelled, but the supply demand still favors the company's needing their goods shipped.

I think Safe Bulkers is a safe play and could be a profitable one over the next two years. They have a history of longer term charters that work out well for themwhen the day rate is depressed, although it may cap their profits when day rates spike. Safe Bulkers claims to have additional financing, funds from a recent stock offering and other funds to bring the new ships online without furhter dilution to current holders. While that remains to be seen they are still paying out the $0.15 quarterly dividend that now works out to an 8% dividend. I'm careful assuming on dividend payout on shippers. Many have cut their dividend or stopped it completely. Some pay dividends by issuing new shares which is not productive to shareholders in the long run. The P/E fluctuates, but at the worse points is still around 7.

The 16 current ships have an average age of only 4.4 years and leasers favor newer ships. Some of the 11 new ships expected betwen now and 2014 are already contracted. If Safe Bulkers can fund the new ships, keep contracts foward of 70% plus and take advantage of erratic day rates on the other 30% then Safe Bulkers could easily double over the next two years if the economy stabilizes and improves only slightly. Safe Bulkers came into the field at a time when dayrates were already starting to decline and have maximized their equity over the period. Using current ship value as cushion is dangerous since a decline in the economy will cause ship prices to drop rapidly, but overall Safe Bulkers appears to me to be about as "SAFE" as a play in this industry can be.

Member Avatar DonkeyJunk (24.69) Submitted: 11/3/2012 10:51:25 PM
Recs: 0

Talk about a sinking ship. Just curious if your evaluation has changed in the past 12 months or if it remains the same. This entire sector seems to be faring poorly, with SB getting pulled down with the rest, even though they continue to pull a profit. Do you think this is due to a lack of confidence in this sector, or something fundamental?

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