Globus Maritime Ltd.

By Cameron Fen

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

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

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

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

Baltic Dry Index Graph

Baltic Dry vs Earnings

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

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

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)

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

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

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)

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

China still has a lot of room to Grow

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

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

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

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