2023-11-30 11:43:22 ET
Summary
- Shares of dry bulk shipper Seanergy Maritime Holdings Corp. are trading at 52-week highs following an epic rally in the Baltic Capesize Index.
- Timely delivery of a Newcastlemax carrier should help the company outperforming Q4 consensus expectations with adjusted EBITDA likely do more than double on a sequential basis.
- Almost equally important, FFA rates for the seasonally weak first quarter have also been increasing in recent weeks.
- With marginal near-term fleet growth and stricter environmental regulations kicking in next year, the setup for 2024 looks promising.
- While I wouldn't chase Seanergy Maritime Holdings' stock following the most recent rally, investors should consider scaling into the shares on potential weakness following a likely near-term decline in charter rates.
Note:
I have previously covered Seanergy Maritime Holdings Corp. ( SHIP ), so investors should view this as an update to my earlier articles on the company.
On Thursday, shares of dry bulk shipper Seanergy Maritime Holdings ("Seanergy" or "Seanergy Maritime") marked new 52-week highs on the heels of an epic rally in the Baltic Capesize Index ("BCI") which has almost tripled in November:
StockQ.org
Over the past week alone, the BCI has more than doubled and is now trading near two-year highs as vessel supply in the Atlantic is struggling to keep up with healthy demand for bauxite and iron ore shipments from West Africa and Brazil to the Far East.
With the company being exclusively focused on the largest dry bulk vessel classes, Seanergy Maritime should be a prime beneficiary of the most recent surge in charter rates.
The company currently operates a fleet of seventeen Capesize and one Newcastlemax carriers with an average age of 12.7 years. Nine vessels are scrubber-fitted.
Last month, Seanergy took delivery of the Titanship , a 2011-built Newcastlemax carrier. The vessel is operating under a time charter agreement for a period of minimum 11 to about 14 months at a daily charter hire based on a significant premium over the BCI.
However, with Newcastlemax carriers being approximately 15% larger than Capesize vessels, the premium doesn't come as a surprise.
While the Titanship is currently chartered-in at a daily bareboat rate of $9,000, the company has an option to purchase the vessel for $20.2 million at the end of the twelve-month charter period. Including the bareboat charter hire and $7 million in payments already advanced to the current owner, the total purchase price calculates to approximately $30.5 million.
Clearly, the Titanship was delivered right on time to take advantage of the vastly improved charter rate environment.
Please note that, similar to its other time charter contracts, the company has the option to convert the variable charter hire to a fixed rate for a period between 2 and 12 months based on the prevailing Capesize Forward Freight Agreement ("FFA") rate for the selected period.
Earlier this year, the company exercised its conversion options for five Capesize vessels which are now fixed at an average daily time charter equivalent ("TCE") rate of approximately $20,500 throughout the fourth quarter.
As of November 14, the company had fixed 59% of anticipated Q4 operating days at an estimated TCE rate of $21,640 on a load-to-discharge basis. However, considering the recent rally in charter rates, the final Q4 number is likely to come in higher, even when factoring in the usual negative impact from ballast days at the end of the quarter.
At this point, I would expect the company to outperform current fourth quarter consensus revenue and profitability expectations by at least 10%, with adjusted EBITDA likely exceeding $20 million, a more than 100% increase from the recently reported third quarter.
Almost equally important, FFA rates for the seasonally weak first quarter have also been increasing in recent weeks. At current FFA rates and assuming some ongoing benefits from the above-discussed fixed rate conversions, the company is likely to generate positive cash flow from operations in Q1.
On the Q3 conference call , management remained decisively positive on the near-term prospects of the Capesize market for a number of reasons:
- marginal fleet growth expected for both 2024 and 2025 based on a very low newbuilding order book
- stricter environmental regulations kicking in next year
- congestion normalizing from very low levels earlier this year
- low Chinese iron ore inventories
- anticipated increase in coal usage in Southeast Asia
- a recent jump in bauxite exports from West Africa.
However, with the seasonally weakest quarter of the year approaching, the recent rally in Capesize charter rates is likely to reverse over the next few weeks.
But with shares still trading at a 40%+ discount to estimated net asset value ("NAV"), investors should consider using potential weakness to gain exposure to the only U.S. exchange-listed Capesize pure play.
Company Press Releases and Regulatory Filings / Value Investor's Edge
Earlier this year, Costamare Inc.'s ( CMRE ) Chairman and CEO Konstantinos V. Konstantakopoulos accumulated a 5.1% stake in Seanergy Maritime with fellow Greek shipping magnate George Economou joining him last week.
In recent quarters, large containership lessors like Costamare Inc. and Danaos Corporation ( DAC ) have also started to pick up Capesize tonnage in the second hand market thus lending additional credibility to management's bullish outlook.
However, investors should be wary of Seanergy Maritime's ongoing corporate governance issues with Chairman and CEO Stamatis Tsantanis effectively controlling the company through supervoting Series B Preferred Stock.
Earlier this year, the board of directors awarded a whopping 1.8 million shares under the company's equity incentive plan with Mr. Tsantanis being the prime beneficiary.
On the flip side, the company has been actively repurchasing common shares, warrants and convertible debt in recent quarters.
In addition, Seanergy Maritime is paying a small quarterly cash dividend of $0.025 per share.
Bottom Line
While the epic rally in Capesize charter rates is likely to reverse going into the seasonally weak first quarter, overall prospects for the largest dry bulk carrier segment appear decent at this point.
As usual, much will depend on Chinese demand for iron ore, coal and bauxite next year, but in combination with limited fleet growth and new environmental regulations, the setup for 2024 looks promising.
While I wouldn't chase Seanergy Maritime Holdings' stock following the most recent rally, investors should consider scaling into the shares on potential weakness following a likely near-term decline in charter rates.
Risk Factors
Please note that the Capesize segment remains highly dependent on Chinese iron ore imports, so any meaningful reduction in iron ore shipments to China would negatively impact charter rates.
In addition, dry bulk shipping is subject to seasonality, with Q1 usually being the weakest quarter of the year.
Lastly, a highly cyclical industry like shipping requires investors to keep a close eye on charter rate developments in order to avoid potentially outsized losses.
For further details see:
Seanergy Maritime: New 52-Week Highs After Epic Rally In Capesize Charter Rates