JAt the time of this writing, Panamax ships command on average a daily spot rate of $3,362 per day. These ships transport on the high seas grains, coal, and all sorts of other dry commodities. The rates seem ridiculously low, down nearly by half on a year-over-year basis and exhibiting no signs of life currently. Yet on June 13, Diana Shipping (NYSE: DSX ) announced a new contract for $9,000 per day for one of its Panamax ships. Both parties involved seem to think an enormous jump in shipping demand is coming right up.
The contract isn't even long term
Normally you might be tempted to dismiss such announcement as speculative guessing when it comes to long-term fix rated contracts, but this one is only for seven to 10 months, or possibly just to the end of this year. While contracts offer security and certainty from both parties, the rate and the price each accepts can be very telling.
Obviously, the amount is related in strong part to current market rates for such contracts, but both parties accepted to partake in that market. The broader market, assuming the $9,000 is a fair price for both parties, is telling you right or wrong that Panamax shipping rates are likely to have a large rally.
Consider some math
The deal was inked with a company called Glencore Grain B.V., Rotterdam. Presumably Glencore thinks current rates are far too cheap and believes it is likely that rates will be going much higher than $9,000 -- and it is therefore getting a bargain. It knows full well it is paying a huge percentage premium at $9,000 in the short run since daily rates are less than $4,000. In order for the $9,000 per day to prove to be a savings, rates will have to go up something materially higher than $9,000 at some point during the duration of the contract.
per motley they have $1.6B of debt that must be paid
per their balance sheet, they have $300M cash and $2.2B of assets
So, let's say they get 60 cents for a $1 on those assets .. that would be $1.3B and with 300M cash, pays off debt
So, share holders will get 78 million shares of ORIG .. and since 410M million shares out there, means you get about 0.2 shares of orig for each share of DRYS .. at $18, that would be $3.5 !!!
around $600M a year per contracts they now have. I am not sure if that is correct, but if so, who cares about DRYS, maybe we should buy ORIG. Also, if DRYS gets 60% of that FCF that would by about $1 share .. Hoe much cash will they loses. But is it better to buy ORIG?
years ... why the CEO thinks rates will go up substantially?
i am learning here .. but i don't think your logic holds much weight .. they have 78 million shares of ORIG which at $18 will net $1.4B, resulting in the dry ships vessel biz to have ZERO debt.
That biz has about $2.2B of vessels and at current depressed prices nets $100M of EBITDA (which at zero debt would have zero interest payment)
With zero debt, it should be valued at 1.3 book value and wit 410 million shares give pps of $7
so $3 does not seem expensive .. thinking of buying next week on weakness
can they find an investor and sell them 78 million shares for say $18
a 5% correction is actually good for bulls, but is not happening
buy on dips
an EPS incresae from 28 cents to 39 cents from Q1 to Q2 and that ORIG always beats these estimates, ORIG Q2 EPS could well increase by 100% ... If so, them why DRYS EPS for Q2 is to be higher loss than Q1. Should it not be the other way around?
of Q1 revenue was due to drilling .. Isn't this the main part of biz .. ORIG
thoughtful responses appreciated