SHIP - Seanergy Maritime Holdings: Downgrading On Weaker Charter Rate Prospects And Renewed Corporate Governance Concerns

2023-05-26 02:11:59 ET

Summary

• Shares of Greece-based Capesize pure play Seanergy Maritime Holdings sold off to new all-time lows after the company reported seasonally weak first quarter results.
• Based on preliminary time charter equivalent ("TCE") rates, Q2 should see a vastly improved performance with the company returning to free cash flow generation.
• The company declared a quarterly cash dividend of $0.025 per common share payable on or about July 6, 2023 to all shareholders of record as of June 22, 2023.
• Despite shares trading near all time lows, the company recently awarded a strikingly high number of shares to executive officers, members of the BoD and non-executive employees with Chairman and CEO Stamatis Tsantanis grabbing the lion's share.
• While the discount to net asset value has increased to over 70%, I am downgrading the company's shares to "Speculative Buy" on weaker charter rate prospects and renewed corporate governance concerns.

Note:

I have previously covered Seanergy Maritime Holdings ( SHIP ), so investors should view this as an update to my earlier articles on the company.

On Thursday, shares of Greece-based Capesize pure play Seanergy Maritime Holdings ("Seanergy" or "Seanergy Maritime") sold off to new all-time lows after the company reported seasonally weak first quarter results:

Please note that last year's rather strong first quarter performance was a rare exception as the Baltic Dry Index was just retreating from decade-highs marked in Q3/2021:

To be fair, the company's top- and bottom line results actually came in ahead of consensus estimates and in contrast to my expectations, cash used in operating activities was just $0.3 million.

On the flip side, vessel operating and interest expenses continued to increase.

Average daily time charter equivalent ("TCE") for Q1 was $11,005, down substantially on both a year-over-year and quarter-over-quarter basis.

That said, Capesize charter rates have recovered quite meaningfully in recent months. As a result, the company's outlook for the second quarter is vastly improved (emphasis added by author):

As of the date hereof, approximately 75% of the Company fleet’s expected operating days in the second quarter of 2023 have been fixed at an estimated TCE of approximately $18,626 . Assuming that for the remaining operating days of our index-linked T/Cs, the respective vessels’ TCE will be equal to the average Forward Freight Agreement (“FFA”) rate of $18,825 per day (based on the FFA curve of May 22, 2023), our estimated TCE for the second quarter of 2023 will be approximately $18,870 .

At these charter rate levels, I would expect the company to report Adjusted EBITDA of between $10 million to $12 million in Q2, well above the $3.9 million achieved in Q1.

As a result, Seanergy should return to free cash flow generation this quarter.

Despite the sale of two Capesize vessels to recent spin-off United Maritime ( USEA ) during the first quarter, the company's cash balance went down by almost $12 million from the end of Q4 due to a number of issues:

1. Repayment of debt associated with the vessels sold to United Maritime
2. Repurchase of an additional $8.0 million in convertible notes from former controlling shareholder Jelco Delta Holding Corp. ("Jelco").
3. Payment of $4.5 million in dividends for Q3/2022 early in Q1

But subsequent to quarter-end, the company closed on a number of new financing and refinancing transactions at improved terms which resulted in the release of approximately $15 million in cash to Seanergy.

The company also declared a quarterly cash dividend of $0.025 per common share payable on or about July 6, 2023 to all shareholders of record as of June 22, 2023.

Following Thursday's drop to new all-time lows, Seanergy Maritime's common shares are now changing hands at an eye-catching 71% discount to net asset value ("NAV"):

While management recently disclosed a moderate number of open market purchases well above current trading prices, I was disappointed about the Board of Director's ("BoD") recent decision to award an aggregate 1.8 million shares under the company's equity incentive plan according to disclosures provided in the annual report on Form 20-F:

On March 27, 2023, the Compensation Committee granted an aggregate of 1,823,800 restricted shares of common stock pursuant to the Plan. Of the total 1,823,800 shares issued on March 27, 2023, 400,000 shares were granted to the non-executive members of the board of directors, 930,000 were granted to the executive officers, 433,800 shares were granted to certain of the Company’s non-executive employees and 60,000 shares were granted to the sole director of the Company’s commercial manager, a non-employee. The fair value of each share on the grant date was $5.22. 607,974 shares vested on the date of the issuance, March 27, 2023, 607,913 shares will vest on October 1, 2023 and 607,913 shares will vest on October 1, 2024.

Not surprisingly, the company’s Chairman and Chief Executive Officer Stamatis Tsantanis has been the prime beneficiary as disclosed in a recent SEC-filing :

On March 27, 2023, 830,000 shares of Common Stock were issued pursuant to a grant to the Reporting Person in his capacity as an executive officer of the Issuer pursuant to the Issuer’s 2011 Equity Incentive Plan, as amended and restated. (...)

Certain of such shares of Common Stock are subject to vesting provisions, as follows: 346,667 shares of Common Stock will vest on October 1, 2023, and 276,666 shares of Common Stock will vest on October 1, 2024 .

Quite frankly, considering the share price performance, awarding almost 5% of the company to the Chairman and CEO gives a terrible impression.

Adding insult to injury, forward freight agreement ("FFA") rates have deteriorated quite meaningfully over the past two weeks with Capesize FFAs now well below the levels witnessed at the time of my last article in mid-March:

With iron ore futures trading near six-month lows on concerns over sluggish Chinese demand and the typical summer lull in domestic construction activity ahead, Capesize charter rates might see additional short-term pressure.

Bottom Line

Seanergy Maritime Holding's common shares tumbled to new all-time lows on Thursday following a seasonally weak first quarter report.

While Q2 should see vastly improved results with the company returning to free cash flow generation, the recent deterioration in Capesize FFAs remains a cause for concern.

In addition, with shares trading at all-time lows, it is difficult to make sense of the recent decision to award a whopping 1.8 million shares to executive officers, members of the BoD, non-executive employees and even the director of the company's commercial manager, a non-employee.

To be perfectly honest, only the massive discount to net asset value is keeping me from outright double-downgrading the company's shares to " Hold " at this point but in light of weaker charter rate prospects and renewed corporate governance concerns, I am lowering my rating from " Strong Buy " to " Speculative Buy ".

Admittedly, Seanergy Maritime has been among my worst picks in recent years but despite the above-discussed negative developments, I am not yet ready to throw in the towel on the company.

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