2023-06-26 09:05:50 ET
Summary
- Last month, leading dry bulk shipper Star Bulk Carriers reported seasonally weak first quarter results but still managed to generate $83.2 million in cash flow from operations.
- The company declared a quarterly cash dividend of $0.35 which will be payable on June 27 to all shareholders of record as of June 7.
- Star Bulk Carriers continues to return substantial amounts of capital to shareholders with aggregate dividend distributions and share buybacks since 2021 eclipsing $1 billion.
- Balance sheet and liquidity continue to be in good shape with adjusted net debt of $855 million representing below 30% of the company's fleet value and available liquidity of $375 million as of May 12.
- While the dry bulk charter rate environment is likely to remain uncertain in the short term, investors with some optimism regarding Chinese iron ore demand going forward should consider an investment in Star Bulk Carriers stock at a rare discount to net asset value.
Note:
I have covered Star Bulk Carriers Corp. ( SBLK ) previously, so investors should view this as an update to my earlier article on the company.
Last month, leading dry bulk shipper Star Bulk Carriers Corp. or "Star Bulk" reported seasonally weak first quarter results but still managed to generate $83.2 million in cash flow from operations.
Based on Star Bulk's generous dividend policy , the company continues to return substantial amounts of capital to shareholders with aggregate dividend distributions and share buybacks since 2021 eclipsing $1 billion.
Star Bulk has declared a quarterly cash dividend of $0.35 which will be payable on June 27 to all shareholders of record as of June 7.
The company also continues to buy back shares under its $50 million share repurchase program announced in August 2021 which I would expect to be exhausted and replaced with a new program later this year.
Star Bulk Carriers remains the world's largest U.S. exchange-listed dry bulk shipping company, commanding a diversified fleet of 126 vessels with an average age of 11.4 years.
With approximately 95% of the fleet being scrubber-fitted, Star Bulk's daily average time charter equivalent ("TCE") rate tends to outperform benchmark indices by a wide margin.
Balance sheet and liquidity continue to be in good shape with adjusted net debt of $855 million representing below 30% of the company's fleet value and available liquidity of $375 million as of May 12:
Valuation-wise, the company is currently trading at an approximately 15% discount to estimated net asset value ("NAV"):
Company Presentation / MarineTraffic.com
Please note that my fleet value estimate is likely on the low side as a result of scrubber fittings not being fully reflected in vessel valuations provided by MarineTraffic.com .
In my most recent discussion of peer Eagle Bulk Shipping ( EGLE ) or "Eagle", the company's own fleet value estimate exceeded the numbers provided by MarineTraffic.com by approximately 17% likely also due to the fact that more than 95% of Eagle's vessels are scrubber-fitted.
Applying a scrubber premium of 10% to Star Bulk's overall fleet value would result in NAV per share jumping to well above $24:
Company Presentation / MarineTraffic.com / Author's Estimates
As a result, current discount to NAV would increase to more than 25% which I consider too high for an industry leading quality name like Star Bulk Carriers.
Looking forward to the second quarter, at the time of the earnings report last month, the company had covered 61% of available days at an average daily TCE of $17,477, approximately 23% above Q1 levels.
Unfortunately, dry bulk charter rates have weakened substantially in recent weeks which is likely to result in the final Q2 TCE number coming in below $17,000.
As a result, I would estimate a Q2 cash dividend of approximately $0.40 per common share.
Looking ahead to the second half of the year, as usual, much will depend on Chinese iron ore demand which is likely to remain muted for the time being.
According to a recent note by JPMorgan ( JPM ), additional support for the Chinese property sector is likely to be localised and targeted with measures being aimed at boosting completions and sales rather than stimulating new construction activity directly.
That said, on the Q1 conference call , Star Bulk's management remained positive on demand for iron ore transportation in the second half:
Well, we are seeing iron ore stocks down to 126 million tons, if I'm not wrong, which is the law for the last at least two years. And we, therefore, expect that we will see more imports in the second half of the year and more so from Brazil, which has not yet performed up to its expectations as far as exports are concerned, which will actually increase ton miles. So, we are positive about iron ore trade during the second half. And then, I think that China will increase its efforts on -- on infrastructure level. And I've also seen that new floor space has gone down a lot. So, I would expect that as China -- as the effort to strengthen its economy continues, I think that we will see support, both from the private and the public sector over there.
Bottom Line
While the dry bulk charter rate environment is likely to remain uncertain in the short-term, investors sharing management's optimism regarding Chinese iron ore demand going forward, should consider an investment in Star Bulk Carriers Corp. at a rare discount to net asset value.
The company remains a quality name in the space with a decent balance sheet and plenty of liquidity.
In addition, there are no major corporate governance issues at Star Bulk Carriers Corp. and the company continues to reward shareholders through a generous dividend policy as well as an active share repurchase program.
Consequently, I am reiterating my "Buy" rating on Star Bulk Carriers Corp.
For further details see:
Star Bulk Carriers: Industry Leader Trading At A Rare Discount To Net Asset Value - Buy