DMER - Dry Bulk Shipping 2016 - Falling knife disguised as pocket of value ?
2015: Investors catch a falling knife disguised as pocket of value
• Investors suffered massive wealth erosion in 2015, as share prices of dry bulk companies kept tumbling during the year. DMER’s shipping index, which is based on the market cap of leading dry bulk companies, was down ~43% in 2015.
2016: Forecasting folly - predicting the unpredictable
• The combined resources of equity analysts, industry analysts, brokers and market participants alike have failed to predict or even fully acknowledge market shifts in the dry bulk market in the past two years.
• We remove the % bands for our DMER “Value†ranking system for dry bulk stocks under coverage and will continue to emphasise on DMER “Risk†methodology for the time being.
Separating the wheat from the chaff
• Investors should not get lured by high cash on the books compared with market capitalisation, after a steep drop in share prices. The available cash could be exhausted over the next 18-24 months if freight rates stay at rock bottom levels
• We have divided our dry bulk coverage universe into two buckets: 1) companies that are well positioned to weather the downturn 2) companies with higher embedded risk. The first cluster comprises D/S NORDEN, Pacific Basin, Diana Shipping and Navios Maritime Holding: all having positive operating cash flows and no financing concerns. On the other hand, Star Bulk Carriers, Scorpio Bulkers and Golden Ocean are exposed to high uncertainty and we advise investors to swap their holdings in these companies with better quality stocks.
Diversified businesses – places to hide in a turbulent market
• Is dry bulk shipping a deep value or value trap? We believe that share prices of dry bulk operators will remain under pressure in 2016. Dry bulk shipping will not be a preferred space in our view and hence recommend investors to be selective while chasing deep discounts. Notwithstanding, investors could look at the companies with diversified business structure over pure plays with large fleet sizes. We recommend D/S NORDEN and Navios Maritime Holdings from our dry bulk portfolio.
Drewry, since 1970, has been providing research and advisory services on the global Maritime and Shipping industries and has established itself as a firm with long history of credibility and expertise on various aspects of the maritime industry. Leveraging this in-depth market knowledge and understanding, we have extended our offering to deliver a unique, independent investment research service on globally listed companies operating in the maritime industry. Under the brand Drewry Maritime Equity Research and in accordance with the FCA, DMER led by Rahul Kapoor and his team, offers fundamental analysis on listed companies. DMER analysts have access to one of the most up-to-date, comprehensive and reliable sources of market insight and research data available today. By combining these market-leading resources with seasoned sector expertise and commercial awareness, we are able to offer a highly differentiated and comprehensive investment research service to prospective investors in listed maritime companies. We look at globally listed companies within the following sectors: Port Operators, Container Shipping, Container Manufacturing & Leasing, LNG Shipping, Dry Bulk Shipping and Tanker Shipping. Combine in-depth sector expertise with financial analysis focusing on over 50 stocks globally.
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