Vermilion Compass: Weekly Equity Strategy

Are the Lows "In" for this Pullback? While we are not yet out of the woods, we continue to see evidence that suggests the lows may be "in" for this pullback. Last week (4/23/24 Compass) we discussed the possibility that further downside was limited on the S&P 500 due to a multitude of reasons (SPX had simply filled 2/22/24 gap support that we had been discussing since late-February, Russell 2000 and Equal-Weighted S&P 500 were holding above key supports, short-term oversold conditions, subdued ...

Yard response and dry bulk qualms

Our trip to South Korea and China revealed Chinese shipbuilders are seeking growth to take on Korea’s established yards who are facing constraints. An eagerness to add capacity is one of our takeaways, as well as a gloomy outlook for Chinese real estate, which in our view should inevitably weigh on dry bulk demand.

A brewing challenge for the yards

Our 17th Annual Energy & Shipping Conference was well attended by investors and industry executives showcasing the still-growing interest for the sectors. Limited yard capacity is fuelling high newbuilding prices and raising freight rate expectations for the vast fleet renewal necessary in the coming decade. Long lead times underpin a bullish supply story for much of shipping in the coming years, albeit exposed to geopolitical risks affecting trade patterns. Our overall impression was general op...

Genco Shipping & Trading (Buy, TP: USD22.50) - Consistent market stren...

We still believe Genco offers an attractive entry into dry bulk exposure, with its material NAV discount (P/NAV: 0.76x) offsetting what we see as elevated vessel values. The current dry bulk markets are staying firm against the risks of easing import demand growth in China on subdued economic indicators and elevated coal stockpiles. Strong forward freight agreements (FFAs) provide comfort to revenues and cash flow near-term, while the long-term investment case remains intact, in our view. We rei...

Genco Shipping & Trading (Buy, TP: USD20.70) - Bulkers at a considerab...

We believe Genco offers investors an attractive entry into dry bulk exposure, with its material NAV discount offsetting what we see as elevated vessel values in light of modest prevailing TC rates. We reiterate our BUY and have raised our target price to USD20.7 (19.0).

Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

Genco Shipping & Trading (Buy, TP: USD19.00) - ~70% upside to 1.0x P/N...

The market is offering discounted access to Genco’s relatively vintage fleet, with low cash breakeven from modest financial leverage, high operating leverage and substantial dividend power, reflected in the stock’s ~70% upside potential to 1.0x P/NAV. We reiterate our BUY and have raised our target price to USD19.0 (18.7).

Burdened by a sluggish economy

We reiterate our BUYs on all our dry bulk names, but catalysts for a marked re-pricing of the stocks now appear further out. In our view, valuation and risk/reward remain attractive, but potential negative earnings revisions and an uncertain outlook should cloud the sector into 2024e. However, we see meaningful upside potential if Chinese growth accelerates and a solid supply side lends support.

Genco Shipping & Trading Minor model adjustments

We have updated our estimates, owing to Genco’s Q2 actuals and fixtures Q3-to-date, and we do not consider these changes to be material. Rates have turned down on soft volumes (excluding China), decent supply growth and easing congestion, which may adversely pressure vessel values until rates recover on currently favourable supply-side fundamentals. Meanwhile, we believe Genco’s 0.71x EV/GAV implies a 5-year Capesize value of USD33.3m (versus the current USD47.5m and all-time low from 2015–2016 ...

Genco Shipping & Trading (Buy, TP: USD25.20) - Dreary markets, but sti...

We have cut our H2e as spot rates have disappointed and the outlook remains cloudy. However, we continue to view Genco’s 0.70x EV/GAV as attractive, implying a 5-year Capesize value of USD33.3m versus the current USD47.5m and all-time low from 2015–2016 of USD23m. At the time, demand growth averaged below 4% p.a. and the orderbook was ~20% of the fleet, versus the current ~6% YTD run-rate and 7.4%, respectively. The effects of this should counter potential demand shortfalls from a near-term soft...

Genco Shipping & Trading Minor model adjustments

We have updated our estimates on Q1 actuals, QTD fixtures and revised fuel spreads. We do not consider these changes to be material, and we have not changed our BUY recommendation. We continue to see skewed risk/reward dynamics, with 90% upside to 1.0x NAV (105% upside to our target price) and material return potential, with a 2023–2025e dividend yield of c25%. More importantly, we calculate 10% downside risk if asset values fall to record-low (March 2016) levels one year forward. We calculate m...

Northern Lights

Genco Shipping & Trading (Buy, TP: USD27.10) - Undervalued gem in dry ...

We see 60%+ upside potential to our target price, as we view Genco as materially undervalued at 3.3x 2023–2025e EV/EBITDA, versus peers at c5.0x. The stock is trading at a 30% discount to steel values, which screens as an attractive entry point given the long-term prospects of the dry bulk space, fuelled by the record-low orderbook-to-fleet ratio, encouraging demand newsflow from China, and latent upside to ROW imports. We reiterate our BUY, but have trimmed our target price to USD27.1 (27.4).

Generally an optimistic bunch

DNB hosted its 16th annual Energy & Shipping Conference. On day two, we hosted sector panels and presentations for dry bulk, LPG, car carriers, LNG and tankers with senior management representatives from 29 shipping companies. A resurging Chinese economy coupled with tight supply outlook, strong demand growth potential and regulations putting pressure to remove older vessels were among the common themes. Overall, the discussions showcase optimism across the sectors.

Vermilion Compass: Weekly Equity Strategy

In last week's Compass (Feb. 22) we discussed our belief that a pullback has begun, and signs continue to point to more downside ahead on the broad market indexes with three failed attempts to reclaim $190 on the Russell 2000 (IWM) and $297 on the Nasdaq 100 (QQQ) over the last four trading days. These remain important lines in the sand moving forward. S&P 500. Last week we noted we were watching 3940-3990 for signs of support on the S&P 500, citing a significant confluence of support there, in...

Genco Shipping & Trading (Buy, TP: USD27.40) - Short-term pain, long-t...

The Q4 results were largely as expected, though QTD fixtures imply some downside risk to near-term consensus. Nonetheless, Genco traded up yesterday on what we believe is continued optimism of positive newsflow from China and a constrained delivery profile (20-year low orderbook-to-fleet ratio of c7%). The risk/reward remains in positive territory in our view, with 50%+ potential upside to our target price and 30% downside to record-low 2016 asset values. We reiterate our BUY but have trimmed ou...

Vital Signs: Actionable charts

In this product we rank the most positive and negative domestic stocks, filter the symbols by market-cap and trading volume, and then divide the companies into sectors and groups. We then manually look through charts leadership/changes, bottoms-up/top-down ideas, short-term patterns that may have long-term significance, etc. We believe you will find this product valuable as significant price and relative moves begin in the daily charts.

Genco Shipping & Trading (Buy, TP: USD27.50) - A diamond in the rough

We find Genco’s current risk/reward dynamics highly favourable, with 70% potential upside to our target price and 25% NAV downside to historical low-point asset values. In our view, this limits the downside risk from current market headwinds, although 2023 FFAs have climbed from a low of USD11k/day to >USD16k/day on the rapid reopening of China’s economy. In a sector with latent upside potential, Genco remains among our top picks, with favourable pricing and earnings capacity on its low cash bre...

Genco Shipping & Trading (Buy, TP: USD27.70) - Unwarranted discount

We have reduced our near-term EBITDA estimates on QTD headwinds, with the forward market indicating even more hardship incoming. We see the soft rate trajectory as temporary, with the share sell-off continuing to offer an attractive entry point given Genco’s 40% discount to NAV, impending demand catalysts (such as China import reactivation), and record-low ordering activity limiting future fleet growth. We reiterate our BUY and have raised our target price to USD27.7 (27.1).

Genco Shipping & Trading (Buy, TP: USD27.10) - Trimming the sails

We have trimmed our near-term estimates to reflect current headwinds in the dry bulk space, and have cut our 2022–2023e adj. EBITDA by 10% on average. The current NAV is affected by deteriorating asset values due to the gloomy macroeconomic outlook, though we see potential for a Chinese rescue into 2023 followed by a return of long-haul Vale volumes, at which point we anticipate hoisting the t’gallants into a substantially stronger dry bulk market. We reiterate our BUY, but have trimmed our targ...