GLBS - Globus Maritime Limited

[DTEJD1997]

Hey all:

 

Anybody else invested in GLBS?

 

I think this is a VERY interesting microcap.  They are a dry bulk shipping company that recently reported better than expected results.  One analyst follows the stock, and was expecting $.10/share.  They reported $.14/share.  The stock promptly went down from $4 to $3.50.

 

These guys own 7 drybulk ships that are relatively new.  They are good managers and have low operating expenses.  Most of their fleet is on short term leases to allow them pick up on increasing rates.

 

GLBS is rapidly paying down their debt.  The resale value of their fleet appears to be on the rise.  Off course, the stock is trading for a significant discount to it's book value.

 

I strongly suspect that they will restart the dividend late this year.  They have reached an agreement with their lenders regarding payment of dividends on common stock.  They have to have a $7mm cash balance for a period of 90 days prior to declaring any dividend on common stock.  They have a cash balance now of $7.1mm. 

 

They have a ship held for sale later in the year that should bring them a good deal of cash.  I suspect that if they sell it for what they expect, they will have a good amount of cash and will start up a dividend.

 

I am also impressed that they can make money at these depressed prices for ship charters.  If rates tick up, most of that should fall through to the bottom line.

 

I've got stock in this and think it could be a big winner, especially if they start up a dividend later in the year.

 

Any thoughts?

[yadayada]

several things you need to look at with shipping companies

 

1: debt obviously

2: are they generating net cash in serious down cycles?

3: what % is on spot market?

4: how old are ships

5: when are they buying and selling ships?

6: are they updating the value of their ships accordingly? They dont need to do this for the banks. So if they dont do this, this shows dishonesty and serious lack of care to shareholders.

 

1 looks ok, 2 looks very ok . It looks like they updated value of their ships, but highly recommend looking into this. This could be a great net net if their value is correct, because according to latest 20-f they trade at a big discount to assets. Also ship age looks good.

 

It does worry me a bit that they sold ships in recent years at absolutely atrocious prices. Dry bulk shipping is basicly about buying ships at low prices and sell them when the cycle starts to go up again. You want to invest alongside with seasoned shipping veterans who show they are good at this. Otherwhise they will waste alot of shareholder money, buying more ships at inflated prices when the shipping rates are up.

 

Id say that the shipping sector can hold very nice bargains because it is likely to be misunderstood by both alot of value investors and rookie investors.

 

But thanks for posting! And if you want to know more, read the shipping man. Great quick read in novel form, that gives you a good primer about the industry.

[DTEJD1997]

several things you need to look at with shipping companies

 

1: debt obviously

2: are they generating net cash in serious down cycles?

3: what % is on spot market?

4: how old are ships

5: when are they buying and selling ships?

6: are they updating the value of their ships accordingly? They dont need to do this for the banks. So if they dont do this, this shows dishonesty and serious lack of care to shareholders.

 

1 looks ok, 2 looks very ok . It looks like they updated value of their ships, but highly recommend looking into this. This could be a great net net if their value is correct, because according to latest 20-f they trade at a big discount to assets. Also ship age looks good.

 

It does worry me a bit that they sold ships in recent years at absolutely atrocious prices. Dry bulk shipping is basicly about buying ships at low prices and sell them when the cycle starts to go up again. You want to invest alongside with seasoned shipping veterans who show they are good at this. Otherwhise they will waste alot of shareholder money, buying more ships at inflated prices when the shipping rates are up.

 

Id say that the shipping sector can hold very nice bargains because it is likely to be misunderstood by both alot of value investors and rookie investors.

 

But thanks for posting! And if you want to know more, read the shipping man. Great quick read in novel form, that gives you a good primer about the industry.

 

Yes, I believe their ship values are reasonably accurate.  They took a HUGE write down on the ship values just over a year ago.  They also INCREASED the value of their 1 ship held for sale, as the market is firming up a little bit.  Even with the big write down, the stock is still trading for well less than book value.

 

They have a relatively modern fleet, so their ships should have MANY more years of life left remaining.

 

They obviously paid WAY too much for their ships.  I'm trying to buy them on the cheap  ;D

 

They also sold equity at MUCH higher prices than where it trades at today.

 

The way I figure it is that if they are making money at these depressed prices, what will they do if rates go up 20%?  What if a year from now, the Baltic Dry Index is even higher?  I don't think it will go too much lower, and is likely to move higher.

 

If it does, earnings will explode higher...if not, the stock is still cheap. 

 

Not a lot of things need to go right for the stock to really take off.

 

There was a VIC writeup on this a while back, and the author did a pretty good job I think.

[yadayada]

one risk is CHina with their mass production of dry bulkers. Allthough alot of them are of poor quality, and to buy those ships the bank often charges pretty high interest rates because of the risks involved. According to some experts it is not really a threat because of that. But I guess you have to keep an eye on the orderbook and on China. What I like about this one tho, you dont need a massive upcycle in the shipping market to make money on it. They generate v nice free cash flow. And if in a few years they pay off most of their debt, they will be able to pay huge dividends compared to their market cap (if the stock didnt move) even if the baltic dry index stays depressed.

 

Dilution of stock is also not much of a risk here. You own less of the company, but you dont get much less cash flow. Because each new ship offers incremental cash flow and higher margins due to scale.

 

Chairman owns 51% and total insiders own like 54% tho. Couldnt they make some lowball offer here for the stock and steal it away from shareholders?

[DTEJD1997]

Chairman owns 51% and total insiders own like 54% tho. Couldnt they make some lowball offer here for the stock and steal it away from shareholders?

 

It is my understanding that scrapping has exceeded new demand for a couple few years now and it is anticipated to be this way for at least a couple years.  Not a huge imbalance...but a few years of supply contracting 2-3% is finally starting to work it's way through?

 

I suppose if the economy really turns the corner, China could ramp up construction...but I think we are a few years from that.

 

I suppose the large shareholders could try and take this thing out...but if they inclined to do that they probably would have by now.  Additionally, the lawsuits would be flying if it went out below book value.  I imagine there would also be tremendous ill will from investors who bought at much higher levels.  A take under might preclude them from doing future business?

 

I really don't see how there will be any dilution at this point.  These guys are generating EARNINGS and cashflow.  They are aggressively paying down debt.  They have a ship for sale that should provide a big boost later this year.

 

The biggest risk I see is if China's economy implodes along with the West.

 

All in all, I think things will probably work out.  At least I hope so! 

[yadayada]

any idea why they are selling a ship now tho? It seems like pretty bad timing. Is it because of their debt? It looks like they will only be in real trouble if shipping rates go below all time lows now. I dont see that v likely.

[DTEJD1997]

any idea why they are selling a ship now tho? It seems like pretty bad timing. Is it because of their debt? It looks like they will only be in real trouble if shipping rates go below all time lows now. I dont see that v likely.

 

I don't think the sale of the ship is "terrible" timing...it might not be the perfect moment to sell it.  As I understand it, they are selling the oldest ship in their fleet.  They also revised it's value upward, as prices for that type of ship are increasing off their lows.

 

I guess there is a "blue book" of ship values that will let you roughly gauge it's worth?

 

I don't know who they are selling it to, but I suspect they might have a few "tire kickers" looking at it.  Management seems pretty confident that they will be able to sell it in the latest quarterly conference call.

 

If BDI collapses to new all time lows, then yes, I think they could be in trouble.  These guys are one of the lowest cost operators around.  If they can't make money...not too many shippers will be able to.

 

I am hoping for a modest improvement in the BDI this Summer & Fall.  Then, I am hoping for a modest improvement off of that for next year.  If that comes to pass, these guys are making solid $, marking up the value of their fleet, and paying a dividend.

 

If those modest expectations come to pass, the stock is going to be SIGNIFICANTLY higher than where it is today.

 

I think GLBS is the best bet in the shipping industry.  Can anybody come up with a different one?

[intensityjp]

 

GLBS seems like a perfect example of Pabrai's 'heads I win tails I don't lose to much' kind of play.  Just looking at their CF from Ops during 2008 when day rates were higher compared to now (the fleet was older but still 7 ships) was enough to make a case. 

 

Also encouraging was that the CEO mentioned a pick up in calls from charters trying to lock in long term contracts in the latest conference call.  People be getting concerned day rates are about to rise significantly I suppose.

 

I did a loose search online of current ship values and determined that the Company has marked its book down to a realistic level.  Is this what anyone else found too?

[DTEJD1997]

 

GLBS seems like a perfect example of Pabrai's 'heads I win tails I don't lose to much' kind of play.  Just looking at their CF from Ops during 2008 when day rates were higher compared to now (the fleet was older but still 7 ships) was enough to make a case. 

 

Also encouraging was that the CEO mentioned a pick up in calls from charters trying to lock in long term contracts in the latest conference call.  People be getting concerned day rates are about to rise significantly I suppose.

 

I did a loose search online of current ship values and determined that the Company has marked its book down to a realistic level.  Is this what anyone else found too?

 

YES

 

That is what I'm talking about...

 

The company took a HUGE writedown on the values of their ships.

 

The values they are carrying are almost certainly a realistic market rate, unlike a lot of their competitors.

 

They are cash flow positive, they have actual earnings, they don't have management skimming off the top with a "management fee", they have realistic values, they have good relations with lenders, and on and on.

 

With a small amount of luck, the return could be tremendous.

[yadayada]

bought a bunch for about 4$, then it dropped to 3.85$ lol.

 

I think the reason why this idea didnt get a high rating on VIC  (and doesnt get much responses here) is because people think the shipping industry is just bad, with the average return on capital being low. With volatile (but somewhat predictable looking at the last 60 years) earnings, it is an industry likely to be mistunderstood and undervalued. But once you get the underlying dynamics, it is very easy to understand. Your buying a cyclical company At it's absolute low that will always make money, that is now trading at less then 3x FCF. You dont even need to have an upturn in the near future. Even if this downcycle will be longer then all the downcyles in the history of shipping, you will still handsomely beat the market with this stock.

 

Probably another misconception, that you need to predict and time macroeconomic events to make money on shipping companies trading at these multiples.

[randomep]

 

Ya I was really touting it in my blog last year, but I panicked when they took a $8 / shr write off. The price I sold at? $2.20, now everytime I see the ticker I want to jump on the expressway.

 

People like those on VIC are there to write a story. The write-ups are complicated and long. Stocks like GLBS are simple and don't make for a good writeup. When I bought GLBS 2yrs ago it was selling at 20% of book. Now it is about 60% of book. If you look at all their 7 ships, they are mostly profitable. Other shipping companies I bet are losing money on their ships. So people throw GLBS in with those other shipping companies.

 

On the other hand, GLBS has been lucky because the BDI has jumped up, the stock is highly correlated with the BDI. I think BDI is bound to go lower cos of global slowdown.

 

 

[randomep]

 

Here is what I wrote last year. I made a good call, but just didn't hang on long enough!  Value investing requires skill in picking and the stomach to hold on..... less learned.

 

http://bovinebear.blogspot.com/search/label/GLBS

[mcliu]

Would someone be able to PM me the VIC write-up?

 

Thanks in advance!

[siddharth18]

I did receive a research report recently about KNIGHTSBRIDGE TANKERS LTD (VLCCF) - attached. It has some nice macro comments.

RICCIO_-_IDEA_UPDATE_VLCCF_4-14.pdf

[yadayada]

http://bmkaratzas.wordpress.com/tag/baltic-dry-index-bdi/

 

problem with all these macro calls and predictions, they are very often wrong.

[mcliu]

What's a good way to determine the value of their 7 ships?

 

It seems like the vessel that they're trying to sell is carried at only 11 million, but the remaining 6 ships are carried at $130 million on the balance sheet. How close do you think these amounts are to actual economic value? It seems like the play is to wait until BDI (and hence ship values) recover..

 

Is there a way to figure out how the value of vessels evolve (the value delta between a 10 year old ship and a 5 year old ship)? I guess my concern is, that if BDI takes 5 to 10 years to recover, whether there will be any residual value to their 10 or 15 year old fleet by that time.

[yadayada]

well second hand ships become worth more then new builds if the BDI shoots up, because if it stays up you get your money back within a few years, and for newbuilds you need to wait a year or 2 years before htey are done. So there is serious risk of ordering a new ship at the top there.

 

It is kinda hard to gauge. With ships this new they wont liquidate any of them when markets are depressed anyway. And if they reach 10 years of age by the time the BDI spikes up, they will fetch more then a new build. And with the cashflow they still generate in the bottom, they wont be forced to liquidate anyway.

[intensityjp]

I was able to find some relatively recent articles online that mentioned what used supramax and panamax ships were selling for. Kamsarmax are slightly larger than panamax so conservatively marked it at the same value as a panamax.  Using those comps value of around 115mm.  Given the extra value for the Kamsarmax's size and the low age of the fleet I figured the company's mark of 134mm passed my reasonableness test.  For what its worth...

[mcliu]

I'm somewhat skeptical of asset values, it seems like there's a pretty large oversupply of ships. Deliveries still seem pretty strong, and there's limited scrappage since the age of fleets is pretty recent. I don't see how trade can pick-up enough to generate demand for all these vessels. On the positive side, it seems like there's a lot of institutional money flowing into the sector as a result of the interest in hard assets which may support pricing.

 

http://www.clarksons.net/archive/imagelib/2013-08-09_upload_7890592_siwc1083.png

[infinitee00]

I'm somewhat skeptical of asset values, it seems like there's a pretty large oversupply of ships. Deliveries still seem pretty strong, and there's limited scrappage since the age of fleets is pretty recent. I don't see how trade can pick-up enough to generate demand for all these vessels. On the positive side, it seems like there's a lot of institutional money flowing into the sector as a result of the interest in hard assets which may support pricing.

 

http://www.clarksons.net/archive/imagelib/2013-08-09_upload_7890592_siwc1083.png

 

+1

[yadayada]

I think liquidation value is irrelevant here. Unless they are in distress it would be idiotic to sell their ships now. Also they are new ships that are more fuel efficient, and they are sought after. Even a 10% efficiency increase can make a big difference given that fuel costs are a high % of total costs. Especially in downcycles like these.

[DTEJD1997]

I'm somewhat skeptical of asset values, it seems like there's a pretty large oversupply of ships. Deliveries still seem pretty strong, and there's limited scrappage since the age of fleets is pretty recent. I don't see how trade can pick-up enough to generate demand for all these vessels. On the positive side, it seems like there's a lot of institutional money flowing into the sector as a result of the interest in hard assets which may support pricing.

 

http://www.clarksons.net/archive/imagelib/2013-08-09_upload_7890592_siwc1083.png

 

If you are skeptical of the ship's values...how far off do you think they are?

 

Management just UPPED the value of the ship they have for sale.  If they suddenly have to reverse that, they are going to look pretty foolish.

 

Management also took a HUGE write down on the ships just over a year ago.  They wrote down the value of the ships by $80MM.  That was about a 37% write down on relatively modern ships (fleet age is about 6 years).

 

So now the market value of the ships is $140MM.

 

Not much of this matters except for the sale of Tiara Globe.  This is going to be a play on cashflow, earnings and dividends.  Last quarter was a very good quarter.  These guys are cash flowing and making solid earnings.

 

If the ships are carried above the market, I doubt it is by very much.  There is also a possibility that they are UNDER market.  We will know a lot more when the Tiara Globe is sold.

[yadayada]

I think you have to take into account that they generate 15 million in the bottom of a cycle. That would imply rouhgly a 10% yield at a time of heavy oversupply. I dont think a 140 million$ valuation is that crazy with like 15 years of life left in the assets? Especially if you consider the option value these ships have.

 

The thing about shipping is that nobody wants to sell their ships at these valuations, so I think liquidation value is very irrelevant in the bottom of a cycle unless there is too much leverage.

[randomep]

I think you have to take into account that they generate 15 million in the bottom of a cycle. That would imply rouhgly a 10% yield at a time of heavy oversupply. I dont think a 140 million$ valuation is that crazy with like 15 years of life left in the assets? Especially if you consider the option value these ships have.

 

The thing about shipping is that nobody wants to sell their ships at these valuations, so I think liquidation value is very irrelevant in the bottom of a cycle unless there is too much leverage.

 

But you don't know what we are at the bottom of a cycle! Or at least I am not sure. Look at the BDI, it isn't on a upward trend.

 

Also, BDI is tied to global economy; are we really going to have a huge uptick in global economy?

 

I think China / Korea and the like will keep cranking out the ships with all the free money floating around the world.... although I don't have hard stats....

 

 

[yadayada]

yeah but alot of chinese ships are low quality, and koreans focus more on specialized ships. Not on simple drybulkers.

 

Also the BDI hasnt been this low in a long time. Note that these guys are excellent operators. A Lot of shipoperators of lesser quality barely made any cash in 2012. ANd these guys made 15 million then. Even SBLK made less, because their ships are older. So we might stay at the bottom for a while, but at this point it is not really interesting to enter the shipping industry. 

 

Allthough now the BDI has picked up a bit, but im using 2012 here to make my point. You have to understand that if the BDI goes even below those levels, a lot of older ships are taken out of the market, so that provides a bottom.

 

Oil was much much lower 10-12 years ago. And those 8-10 year old ships were built around that time. So ship builders and owners didnt care that much about fuel costs, they cared more about speed. So these older ships have more powerfull turbines, that suck oil. The newer builds are less powerfull and more economic.  So now oil went from like 20$ a barrel to 100$ a barrel. And bunker costs are a significant % of operating costs now.

 

Also orderbook on newbuilds is down a lot. And BDI doesnt have to move that much to make a fat profit on this stock. I dont think they will make much less then 15 million a year in the forseeable future. On a 40 million$ stock. With significant optional upside.

 

I think in 10-20 year time when there are only fuel efficient ships on the market, the BDI can bottom out even lower, unless ofcourse oil shoots up to 200-300$.

 

orderbook:

http://www.brs-paris.com/news/drybulk/593/pdfs/dbnl-593-a.pdf

 

I think it was roughly the samme in 2013?