Scorpio Bulkers Upgraded By Credit Suisse, Sees 15% Increase In Dry Bulk Asset Prices

Credit Suisse upgraded Scorpio Bulkers Inc SALT to Outperform from Neutral on expectations of higher bulk prices.

“Bulker prices are up roughly 30% since bottoming in 1Q16 and with nil modern tonnage available for sale we expect prices to grind higher,” analyst Gregory Lewis wrote in a note.

Lewis noted that charter rates also look to have put in a bottom with channel checks indicating charterers continuing to buy the dips.

The analyst added that investors have ignored that ship types have evolved in years, and adding a few ships has little impact to Scorpio Bulkers’ earnings potential.

“That should put SALT in a cash harvest mode (think dividends) sooner than its competitors - thinking 2H18. Of course rates will need to go higher (2017 will be better than 2016) and some deleveraging needs to happen first,” Lewis continued.

The analyst’s Blue Sky scenario of $20 implies another about 30 percent rise in second hand asset prices and 30 percent premium to NAV while his Grey Sky scenario of $4 implies asset values return to their 2016 lows.

Lewis also raised his price target by $3 to $10, which implies a 15 percent increase in dry bulk asset prices.

Shares of Scorpio Bulkers closed Friday’s trading at  $7.65. In the pre-market hours, they climbed 5.88 percent to $8.10.

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