Genco Shipping: 24% Discount To PNAV, LTV Below 20%, And Attractive Dividends

seekingalpha04-03

Genco Shipping remains one of my favorite dry bulk bets. The company barbell approach makes it attractive to me.Financially, the Company has significantly improved its capital structure over the last ...

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The company barbell approach makes it attractive to me.Financially, the Company has significantly improved its capital structure over the last ...</p>\n\n<a href=\"https://seekingalpha.com/article/4681854-genco-shipping-24-percent-discount-to-pnav-ltv-below-20-percent-attractive-dividends\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Genco Shipping: 24% Discount To PNAV, LTV Below 20%, And Attractive Dividends</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nGenco Shipping: 24% Discount To PNAV, LTV Below 20%, And Attractive Dividends\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-03 11:20 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4681854-genco-shipping-24-percent-discount-to-pnav-ltv-below-20-percent-attractive-dividends><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Genco Shipping remains one of my favorite dry bulk bets. The company barbell approach makes it attractive to me.Financially, the Company has significantly improved its capital structure over the last ...</p>\n\n<a href=\"https://seekingalpha.com/article/4681854-genco-shipping-24-percent-discount-to-pnav-ltv-below-20-percent-attractive-dividends\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"GNK","symbol_name":"根科船务贸易","start_time":0,"source_url":"https://seekingalpha.com/article/4681854-genco-shipping-24-percent-discount-to-pnav-ltv-below-20-percent-attractive-dividends","article_id":"2424832242","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1412530473/image_1412530473.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2424832242","pubTimestamp":1712114443,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Genco Shipping remains one of my favorite dry bulk bets. The company barbell approach makes it attractive to me.Financially, the Company has significantly improved its capital structure over the last ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"GNK":"根科船务贸易","BK4588":"碎股","BK4021":"海运","HSHP":"Himalaya Shipping Ltd.","SBLK":"Star Bulk Carriers Corp","GOGL":"金海洋集团","BK4563":"昨日强势股","BK6522":"化石燃料股","QSD.SI":"Resources Gbl","BK6027":"贸易公司与经销商","BK4585":"ETF&股票定投概念","SHIP":"Seanergy Maritime Holdings Corp"},"translate_title":"Genco航运：对PNAV 24%的折扣，低于20%的LTV，以及诱人的股息","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"GNK":1,"GOGL":1,"HSHP":1,"QSD.SI":1,"SBLK":1,"SHIP":1},"content_text":"Genco Shipping remains one of my favorite dry bulk bets. The company barbell approach makes it attractive to me.Financially, the Company has significantly improved its capital structure over the last few years. On December 31, it declared $47 million in cash and $190 in long-term debt.FY23 GNK realized lower TCE rates compared to FY22. However, the company employed its ships in 1Q24 at TCE, 35% higher than the 2023 average.Genco strikes a balance between fleet quality, price to NAV, and loan to value. In addition, the company pays dividends with attractive yields.CloudVisual Note: I previously covered Genco Shipping (NYSE:GNK). In my previous analysis, I discussed the company's barbell approach, financials, and relative valuation. In today's article, I review the last earnings report, update the evaluation, and assess the risks. Fleet GNK applies the barbell strategy. The company owns 16 Capesize vessels and 27 Handymax (15 Ultramax and 12 Supramax). This approach distributes GNK's upside potential while mitigating its risks. Looking at the details, GNK installed scrubbers only on its Capesize vessels. Considering that the Capes segment consumes most of the fuel and spends most of the time at sea, it is a reasonable decision. Below is a quote from my previous article on GNK explaining the advantages of the barbell approach. Capesize ships have a higher beta to shipping industry changes. There is demand, which is primarily a function of iron ore demand. In other words, it depends on changes in global steel production. Conversely, minor bulk carriers like Ultramax and Panamax have relatively stable earnings compared to Capesize vessels and navigate in diverse trade routes (usually regional voyages). FY23, GNK purchased two 2016-built Capesize vessels for $86 million combined. The new fleet additions come with installed scrubbers. In 2023, GNK sold three older ships, improving its feet age profile. Annually, the average fleet size changed from 44.0 vessels in December 2022 to 44.2 in December 2023. The fleet utilization improved a little, reaching 97.3% in FY23 from 96.5% FY22. Last earning report discussion The table below from the 4Q23 presentation shows GNK operational figures. GNK 4Q23 presentation FY23 GNK employed its vessels under $14,766 fleet average TCE vs $23,824 FY22. Nevertheless, the company realized $17,373/day TCE in 4Q23. For 1Q24, GNK contracted 81% of its fleet available days at $18,900/day. It is higher than the 4Q23 and FY23 figures despite the weak seasonality for dry bulk rates from January to May. GNK operates 44% of its ships under spot contracts. Going into detail, 62.5% of the Capes are employed under voyage charters, while that percentage is lower across Handymax segments. Capesize TCE rates are more volatile, offering huge upside potential and significant downside risk. The following chart gives more details on average TCE rates and daily OPEX by vessel type. GNK 4Q23 filling Supramax rates realized the largest YoY decline, 52.6%. The Ultramax segment followed closely with a 46.9% drop. Capesize TCE squeezed by 18.7% annually to $18,280/day FY23. The TCE rates are beyond the ship owners' control. However, to some extent, the ship owners can manage OPEX. The fleet average OPEX dropped by 2.9% YoY, reaching $6,017/day FY23. The following chart shows the GNK income statement for FY23. GNK 4Q23 filling FY23 GNK delivered $383 million in revenue and $89 million in EBITDA, significantly lower than the 2022 results of $536 million in revenue and $219 million in EBITDA. The primary reason for declining profitability is the weaker day rates, especially during the first three quarters of 2023. As pointed out, GNK operates almost half of its ships under spot contacts. So, a significant part of company expenses falls under the Voyage Expenses category. This includes bunker costs, stevedoring fees, and canal transit dues. Operating expenses include all regular costs, whether the ship is alongside or not, such as crew wages, insurance, maintenance and repair costs, lubricants, and provisions. Over three years, the voyage expenses remained relatively stable. More impressive, however, is the OPEX stability YoY. Despite the inflation, GNK actually reduced its annual OPEX to $97 million FY23 from $99 million FY22. All operational expenses are inflationary sensitive, so keeping them in check in an inflationary environment is an achievement. Another positive development is the declining net interest expense YoY. GNK incurred $8.1 million net interest expenses FY22 vs $6.1 million FY23. GNK pays dividends with adequate yield, 4.23% TTM, and 8.1% FWD. The dividend distribution for 4Q23 is $0.41/share. GNK management deserves credit for its transparent dividend policy illustrated below: GNK 4Q23 presentation The company distributes all excess cash after covering the Dry docking, OPEX, and Reserves. Given the payout rate above 100%, dividend safety is questionable. On the positive side, we must consider GNK's systematic deleverage and strong operating cash flows YoY, as shown in the table below. Koyfin Regardless of the day rate volatility, GNK generated sufficient operating cash flow. GNK significantly improved its capital structure. The company has an 8% net LTV (pro forma), one of the lowest in the industry. Total debt to equity is 21.2% or 66% lower than in 2020. GNK has $47 million cash, $190 million long-term debt, and $194 million total debt. FY23 GNK delivered $91.8 million operating cash flow and $35.9 million operating income. Over the same period, the company had $6.1 million in interest expenses. Valuation To assess how the market values GNK, I picked a shipping company based on one criterion: high exposure to the Capesize/Newcatslemax market. The companies included in the following table have Capesize-only fleets, or a large part of their fleets include such vessels. I picked Star Bulk (SBLK), Himalaya Shipping (HSHP), Seanergy (SHIP), and Golden Ocean Group (GOGL). The table includes fleet specifications, PNAV (Price to Net Asset Value), and gross LTV (Loan to Value). I used the weekly updates posted by Fearnleys and Compass Maritime to estimate the fleet replacement cost per company. Author's data GNK scores the lowest LTV among its peers. Its PNAV is close to SBLK and HSHP. However, GNK has a relatively older fleet and fewer scrubber-equipped ships. HSHP, actually, owns the best fleet (in the sample group), considering its dual-fuel LNG propulsion-fitted ships (plus scrubbers) and an average fleet age below one year. The best fleet, though, comes at a high price. HSHP LTV is 52%. The next step is to evaluate GNK's standing based on EV multiples. The company trades at 2.64 TTM EV/Sales and 11.42 TTM EV/EBITDA. Seeking Alpha Given those values, GNK trades at a discount relative to the sample group, although is not the cheapest proposition. The FWD multiples paint a similar picture: GNK is not undervalued or overpriced. Looking at EV/EBITDA FWD vs. TTM multiples, all listed companies suggest upside potential. It is up to investors' preference which one to pick. Investors Takeaway Since my first article, GNK has moved up by 24%. I still hold GNK shares. I believe that in 2024, the stock will show off its potential. Despite my firm conviction, my thesis carries a few risks. The demand for large bulkers is the most pronounced risk for GNK since the company employs 62% of its Cape segment under spot contracts. The demand for such vessels is a function of iron ore demand, i.e., steel demand. The two largest steel producers globally are China and India. So, the need for Capes depends on the hunger for steel in these countries. In 4Q23, iron ore imports in China bounced. Chinese steel production remained flat in FY23; however, India scored a significant growth of 12%. In the coming years, the demand for steel is projected to grow by 1.9% globally, as forecasted by WSA (World Steel Association). Shipping is characterized by epic boom-and-bust cycles. So, despite its profitability, every company will eventually experience a steep bear market. At that point, goal number one is survival. For shipping companies, the lower the cash break even, the higher the chances of weathering the storm. GNK excels on that metric. The downside is risk is capped, as seen in the chart below: GNK 4Q23 presentation As the chart says, 90% of the time, the rates remained above the cash break event levels for the last 24 years. Conversely, only 10% of the time, day rates were lower than cash break even.  GNK's balance sheet has a prudent capital structure and ample liquidity. Besides that, GNK does not have any mandatory debt repayments before 2028. Hence, the financial risk is well managed. GNK offers everything I look for in dry bulk shipping stock: an adequate discount to PNAV, gross LTV in the teens, and large exposure to the Capesize market. My verdict is a Buy rating.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2424832242"}