TBS International Limited (TBSI)

Second round. Dipped in price, but still seems solid.

The upcoming merger with "TBS-Ireland" will ensure better days ahead for the patient shareholder.

The Baltic Dry Index has established a bottom. The only question is the pace of global recovery, when and not if. Select Bulk Shipping stocks will show 500% to 1,500%, returning to previous price levels.

Good growth and earnings.

The BDI isn't coming as quick as the econmey recovers-expect the this shipper to sail in shallow waters, but, deep blue pockets of money is on the way-buy/long

Good book value, excellent cash flow, solid financials, earnings and sales, growing ebit-da, deflated industry. strong buy

At $6.68 per share, I am buying TBS International for 0.35 times book value. As long as the company survives, this will be a two bagger or better. Survival is extremely likely because this dry bulk shipper has lots of cash and only a reasonable amount of debt.

Well-managed company. Looks very cheap right now.

Today was a disappointing day for TBS International Shipping (NASDAQ: TSBI), a day after reporting less than lackluster financial results. The market took notice, shaving 15% off the company's stock price. Despite giving Mr. Market a bit of indigestion, yesterday's news is not a sure indication to sell. I’m here to argue the current valuation picture remains attractive for those wanting to hold on for the long-run.

Before delving into the numbers, I must come forth with and admit to a mistake I made in my earlier analysis of TBSI. First, I did incorporate a 50% haircut to revenue projections for 2009, but I left EBIT margins fixed at its historical average. Yesterday, when the company reported earnings after the bell, I was shocked to discover EBITDA down some 88% from last year during the 6 month period ending June 30th. I should have realized some costs are fixed in the short run, namely the cost of running vessels, and that these would have a drastic impact on earnings if top-line contracted as expected. The problem, the company faced lower freight rates but continued operating – the following excerpt was taking from yesterday’s earnings announcement:

"Total cargo volume (including aggregates) increased 161,000 tons or 7.0% to 2,449,000 tons for the second quarter 2009 from 2,288,000 for the same period in 2008. The increase in cargo volume is attributed to a slight increase in both aggregates (97,000 tons) and non-aggregates (64,000 tons) carried.

Cargo volume (excluding aggregates) increased 64,000 tons or 5.2% to 1,297,000 tons for the second quarter 2009 from 1,233,000 tons for the same period in 2008. Freight rates excluding aggregates decreased $51.46 per ton or 56.1% to $40.33 per ton for the second quarter 2009 from $91.79 per ton during the same period in 2008.

Average Daily Voyage Time Charter Equivalent, which is an industry standard metric reflecting the daily net earnings of a voyage after deducting all voyage expenses from voyage revenues, was $11,268 per day in the second quarter 2009, a decrease of 64.8% from the $32,007 during the same period in 2008 and a decrease of 3.6% from the $11,685 per day during the first quarter 2009, reflecting continued weakness in the dry cargo industry."

It was business as usual, with half the revenues – a toxic mix for earnings prospects!

After nursing my wounds, I dug in the announcement and adjusted my valuation. Here, I assume top-line contraction will hold at 55% for 2009. Then, revenues will begin growing at a rate of 5% for the next 4 years, at which point growth will follow the assumed GDP rate of 3%. For years 2010, 2011, EBIT margins were fixed at a negative 18% and 10%, respectively. In 2012, I am assuming management will have figured out how to squeeze out some profits, reintroducing EBIT margins of 10% in 2013 and 20% indefinitely from then on (all below the prior year averages).

When all is said and done, my intrinsic value falls at $12/share – a 42% margin of safety at current prices.

This investment is not without its risks. First, management needs to find a way to return this company to profitability. Understandably, higher freight rates are contingent on an economic recovery. Nonetheless, management needs to take measures to keep costs under control. We will have to wait and see how the profit picture fares in Q3 & Q4; if there is continued deterioration, I’d bid this stock farewell. Secondly, management is engaging in sizeable capital investments which are worrisome, considering these cash flows could be distributed to shareholders and invested to yield market returns. What is troubling here is the fact the company’s profitability is impacted by running its fleet of vessels, adding more vessels may be akin to adding gasoline to the fire. My model attempts to capture the “no-growth” scenario and assumes capital investment will yield historical returns, which remain well above my assumed cost of capital. Under the “no-growth” scenario, I’ve effectively ignored these capital expenditures and assumed these would be undertaken strictly to keep the current fleet afloat (capex = depreciation). Should the returns on these new assets fall well short of historical levels, the valuation picture may turn south quickly. Thus, this stock is not without its risks.

I am bullish on the shipping industry for the long term as the world economy becomes more interconnected. This company has remained profitable even through the recession and the boat of this company has sank unnecessarily deep with the sinking tide of this sector.

low price to book

Low price to book, A good Current ratio, Low p/e ratio. Drybulk shipping will eventually pick back up when the economy returns to normal, I would say more then 5 years on this one, probably around 10

Strong financials, an improving international trade situation in the mid-long term, and good fundamentals lead me to believe that TBSI will be a strong earner and a good pick.

almost has the current share price in cash on hand. book value almost 3x price. current PE under 2. Very low debt. All of this in a environment where shippers have suffered. I see much better times ahead.

See pitch by Junkyardhawg1985.

Low PE. High insider ownership.

Fidelity screen

With the price currently crushed, it seems a good value. Among the drybulk shippers, they're one of the best.

Manageable balance sheet, which is more than I can say for most shipping companies.