globus maritime stock write up
DESCRIPTION
Investment Write-Up for Globus MaritimeTRANSCRIPT
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Globus Maritime Ltd.
By Cameron Fen
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Dry Bulk Shipper
• Globus Maritime Ltd is a Drybulk Shipper• Fleet consists of 7 vessels
– 2 Panamax’s, 4 Supramaxes, 1 Kamsarmax• Fleet is relatively conservatively valued
– Book Value of vessels is 133 million dollars– Dry Ships recently sold 2 Panamax’s of comparable age for
a total 80 million dollars (some charter benefits factored in)– Eagle Bulk Shipping purchased 2 Supramaxes built in 2001
for 70 million (Again some time charter)– According to Vesselvalue.com the ships are accurately
valued
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Current Situation
• The company is currently earning money– 4 million in profit before one time vs. 40 million
market cap• Company has about 84 million in debt– High debt load is relatively common for shipping
companies– GLBS has a relatively manageable debt load compared
to others• GLBS fleet is still young– Average age of fleet is 7.0 years
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Discount to Book Value
• The company is currently trading at 66% of book value
• Book value may be understated because of low valuation on ships
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The Baltic Dry Index
• Globus is sensitive to the Baltic Dry Index– BDI is the index that measures shipping prices for
dry bulks• Regressing Globus Profit on BDI yields an
equation of .0091*BDI – 8.9834 = Profit– R^2 of .9288– P stat of .0001• Virtually certain there is a relationship with BDI and
Profit
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Baltic Dry Index Graph
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Baltic Dry vs Earnings
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Why is there an opportunity here?
• Baltic Dry Index is depressed• Taking a 3 year average of the BDI 1987-1989
and increasing that value by inflation leads to a cyclically adjusted BDI of 2300 in 2014– This should be a approximation of a normalized
level for the BDI• Current BDI is at 1017 and has averaged 1070
the past 2 years
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Earnings at 2300 BDI
• If we were to input the projected average BDI value on our profit function we would get a profit of 11.96 million dollars– Market cap is 40 million
• Average earnings over since inception is 12.26 million dollars– Checks out
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Low BDI
• Despite a low BDI GLBS has managed to make money
• Management is very good operationally especially considering the lack of size of the company
• Caveat: The don’t sell ships at the right time (top of cycle)
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Oversupply of Ships
• The dry bulk industry is currently experiencing an oversupply of ships
• Ships were overproduced when the index was high– Takes 3+ years for oversupply to work its way out of
the system– Why?
• Ships take a long time to build• Many ships are still being built were ordered 2 years ago
when BDI was still high
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Growing Economy
• The BDI should increase in the near future as scrapping old ships replaces the new ships that are being built
• Credit Suisse projects worldwide fleet will increase by 3% in 2014 and then will fall by 2% in 2015 and the fall will accelerate
• Moody: “We believe industry conditions are at a trough and that supply-demand gap will not worsen materially”– Moody’s changes it’s outlook from negative to stable for the
first time since 2011
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Growth Projections
• Barclays has projected the dry bulk seaborne trade to grow at 5.8% this year which outpaces the 5.3% rise in the fleet
• The peaks of the BDI have been the result of the commodity supper cycle that has been caused by the rise of China (and perhaps in the future India)
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China Growth
• China may undergo a correction in the near future (potential risk)
• However the commodity super cycle still has a long way to play out
• BDI can grow significantly faster than inflation due to China– This though does ignore that it is a commodity
business and it will attract more ships– Commodities businesses typically increase prices at
the pace of inflation
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China still has a lot of room to Grow
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PV of Globus current Fleet
• Calculating the present value (at 10% discount rate) of Globus’ fleet assuming they earn the same profit they earned this year into the future yields a value of 46 million dollar– Debt was also discounted at 10%
• This assumes prices go nowhere…• Downside is protected
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Risks
• Baltic Dry Index declines further– Mitigated by the fact that fleet size is starting to
decline after irrational buying in the previous few years
• Most of the debt is floating– Libor and the World economy usually move in
tandem, if Libor moves up chances are there will be more demand for GLBS ships
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Risks (cont.)
• China goes into a recession– China may have some contractions but it is
undeniable that these contractions will be in the short term and the overall trend over the next 15-20 years will be growth
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Summary
• “Heads I win, Tails I do fine” sort of situation• Strong Management team can keep GLBS
earning money even in the trough of the cycle– 4 million in earnings for a P/E of 10
• If the cycle turns up GLBS can earn a lot more money– With 4 ships GLBS, earned 47.5 million dollars in
2008• Market Cap is 40 million