With the dry bulk market gradually showing signs of a recovery, Morgan Stanley’s Fotis Giannakoulis believes Safe Bulkers, Inc. SB is the best play in the dry bulk segment, given its “positive operating cash flow, ample liquidity and minimal dilution risk.”
Giannakoulis maintains an Equal-Weight rating on the company, while raising the price target from $1.10 to $1.20.
2Q Performance
Safe Bulkers reported its 2Q results marginally above expectations, with the EPS of $(0.14) beating the consensus and the estimate.
Daily revenues came in at $7.6kpd, in line with the estimate, while expenses were 3 percent below expectations, leading to higher than expected EBITDA of $8.9 million.
“In 2Q, SB took delivery of the Kypros Spirit, a Panamax bulker, bringing the company's total fleet to 37 vessels. Four newbuilds are still expected for delivery; three in 2017 and one in 2018,” Giannakoulis mentioned.
The analyst believes that the remaining capex, worth $100 million, can be covered through the company’s existing liquidity of $170 million, and management has indicated that there was no intention of taking on any additional debt.
Liquidity Position
Giannakoulis also pointed out that dilution was unlikely, given that the operating cash flow was already positive, with Safe Bulkers having sufficient liquidity to see it through the current downturn.
According to the Morgan Stanley report, “Management was firm that they have sufficient cash and that they intend to do whatever it takes to avoid issuing any equity, suggesting that in the event of a further market deterioration the disposal of the newbuilds could be the alternative if necessary.”
During the previous quarter, the company had taken on a series of refinancings of its debt facilities, bringing its cash breakeven to lower than $8kpd.
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