GLBS - Globus Maritime Limited

[infinitee00]

I like the idea and the thesis looks attractive, however given what I know about the sector, I am a bit cautious. Most of the ships that are being scrapped today are above 20 years old and there's enough 20+ yr old ships today, that it will take about 2-3 years to scrap. Yes, I do think that if charter rates stay low, 15-20 yr old ships will start to get scrapped. However, I am not sure if that will happen fast enough and I am not very optimistic that charter rates are going to go up from here

 

Here's some relevant information from clarksons research

 

With a surplus of tankers and bulkcarriers it would suit many investors if the old ships quietly left the market. That’s what happens in recessions – the new technology chases out the overage and obsolete ships, leaving a more efficient and eco-friendly fleet to lead the industry into the upswing. But, convenient though this would be for owners of new tonnage, realizing this scenario in today’s market faces two obstacles.

 

Not So Obsolete, Actually

 

The first is that ship technology has not changed much in the last 20 years, so well maintained old ships do not carry a big cost penalty, especially when slow steaming. On paper the new generation eco-ships might knock 10% off consumption, but many of the improvements can be retrofitted. The market seems to agree, bidding the price of a 10-year-old Panamax bulker up by 52% since the end of September 2013.

 

Meanwhile new ships face eye-watering capital costs. Although interest is low, bank lending margins are high and interest rates will probably rise. Also new ships face heavy depreciation. For example at today’s prices, depreciating a new VLCC, might cost $13,000 per day. Admittedly it’s not cash, but ignoring depreciation is a dangerous game

 

 

Not Much to Scrap About

 

The second obstacle to ditching the old ships is that in these sectors there are not so many of them left. The normal scrapping age for merchant ships is 20-30 years, which today means ships built 1984-94. In those days there were few deliveries, and the age profile of the bulk fleet is very skewed. Only 79m dwt of bulkers and 28m dwt of tankers are 20 years old or above. At recent scrapping volumes that’s about three years of demolition. There’s another 127m dwt of 15-19 year old tonnage, but would investors pay $14.5m for a 15 year old Panamax if they thought it was a possible scrap candidate?

 

Shipping is a very macro-driven industry ( more so than others) and has some similarities to investing in commodities. In 2010/11, I went long some dry bulkers like DSX and NM, but after re-thinking my assumptions ( charter rates, supply/demand, scrapping/new builds, interest rate environment etc) and the dependence of this sector on the Chinese economy ( almost every executive of shipping companies spend a significant amount of time during their conference calls trying to predict chinese demand for X,Y,Z commodity...also check this historical BDI chart - https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.html, the growth of which seems to align with the phenomenal growth in the chinese economy ) I decided to exit with modest gains/losses ( I am not very confident that the chinese economy will maintain its growth rates in the future). I do not see much upside in this sector in the near term but then again, I do not have any skill in predicting the future accurately.

 

If I understand the thesis here correctly, it is that GLBS has its downside protected by asset value of the ships ( market values of ships are typically a function of existing charters/charter rates, age of vessel etc, so there is some assumption about future charter rates there) and will manage decent returns in this environment with the added optionality if charter rates shoot up. Am I wrong in my understanding?

Btw, looking at Morningstar, it seems shares outstanding have grown significantly in the last few years. Has anyone considered the risk from significant dilution in the future as well?

[infinitee00]

OK Looked at the write-up on VIC. It did help me answer a few questions. It seems the biggest risk could be flat or declining dayrates and the debt due in the next few years. I am tempted to start a position but may do a little bit more due diligence before pulling the trigger.

 

Thanks for the idea DTEJD1997.

[Danger Zone]

This seems like a very interesting case. Does anyone know of a good website or blog get familiar with the shipping industry? Something like rigzone would be great! I will order The Shipping Man, but it would be nice to have something to read during the weekend.

[yadayada]

 

http://anzaliport.pmo.ir/pso_content/media/digitallibrary/2013/4/book15/15.pdf

 

 

[infinitee00]

This seems like a very interesting case. Does anyone know of a good website or blog get familiar with the shipping industry? Something like rigzone would be great! I will order The Shipping Man, but it would be nice to have something to read during the weekend.

 

I first learned about it briefly ( mostly tankers) from the Dhandho Investor by Pabrai. After that I basically started reading annual reports and listened to conference calls of the large shipping companies. I also follow gcaptain - http://gcaptain.com/ although a lot of it may not be very useful unless you work in the shipping industry but they do have some insightful reports from time to time. For books you can look at maritime economics as linked by yadayada above ( there is more recent edition of that book ) or Elements of Shipping by Branch. There is also Shipping Finance by Harwood if you are really into it.

 

If you are looking for a brief overview of the drybulk carrier industry, you can find it here - http://www.gencoshipping.com/industry.html or something a little dated here - http://www.capitallink.com/press/BarronsArticleOct192006.pdf

 

 

 

 

[Danger Zone]

This seems like a very interesting case. Does anyone know of a good website or blog get familiar with the shipping industry? Something like rigzone would be great! I will order The Shipping Man, but it would be nice to have something to read during the weekend.

 

I first learned about it briefly ( mostly tankers) from the Dhandho Investor by Pabrai. After that I basically started reading annual reports and listened to conference calls of the large shipping companies. I also follow gcaptain - http://gcaptain.com/ although a lot of it may not be very useful unless you work in the shipping industry but they do have some insightful reports from time to time. For books you can look at maritime economics as linked by yadayada above ( there is more recent edition of that book ) or Elements of Shipping by Branch. There is also Shipping Finance by Harwood if you are really into it.

 

If you are looking for a brief overview of the drybulk carrier industry, you can find it here - http://www.gencoshipping.com/industry.html or something a little dated here - http://www.capitallink.com/press/BarronsArticleOct192006.pdf

Thank You! I don't remember Pabrai mentioning it in his book, so I guess another revisit is needed there. I will definetly check out the websites and books aswell.

 

[DTEJD1997]

Hey all:

 

Anybody still watching this?

 

I doubled my position on the recent weakness.

 

I think at prices around $3.50/share, it is a great entry point.

 

Anybody else snapping up shares?

[randomep]

Hey all:

 

Anybody still watching this?

 

I doubled my position on the recent weakness.

 

I think at prices around $3.50/share, it is a great entry point.

 

Anybody else snapping up shares?

 

I am watching it everyday, I think I will buy under $3. Only because I sold at $2.20 ( I know you are sick of me saying that).

 

[yadayada]

Im starting to like SBLK more now. It dropped from 14 to like 11$ now.

 

Better operators and capital allocators.

 

They will double their fleet in 1-2 years, with v fuel efficient ships. I think they can do 70m$ in net cash in a bad market. Vs globus which is now at 13 million$.

 

Debt will be around 400 million$ in 2016. They do 80m$ in all time bad markets then (possibly more).

 

So that is about 5-6x their FCF in debt. And vs their market cap right now that is about a 25% yield.

 

Net debt for  GLBS is like 78mn$ now. They probably do 12-13m$ in bad markets . This is the same ratio. But a 38% yield vs their market cap.

 

But SBLK earns management fees to by managing other ships. Plus if there is an upturn, SBLK has more operating leverage I think . But they now have a slightly higher age of fleet.

 

If SBLK drops below 10$, I will def buy them.

[randomep]

 

GLBS quarterly out......

 

11cents earnings, down due to greater expenses.... revenue was down too

[yadayada]

why is this stock at zero all of a sudden on IB? Also doesnt trade unlike the others? Some kind of error?

[randomep]

Hey all:

 

Anybody still watching this?

 

I doubled my position on the recent weakness.

 

I think at prices around $3.50/share, it is a great entry point.

 

Anybody else snapping up shares?

 

I am watching it everyday, I want to get back in at $3, and it is close now. BDI is at lows for the last 2-3 years that I've followed it, but really we are in a unhealthy world economy so I need extra margin of safety......

 

I think it is very likely it will hit $3

[DTEJD1997]

Hey all:

 

Anybody still watching this?

 

I doubled my position on the recent weakness.

 

I think at prices around $3.50/share, it is a great entry point.

 

Anybody else snapping up shares?

 

I am watching it everyday, I want to get back in at $3, and it is close now. BDI is at lows for the last 2-3 years that I've followed it, but really we are in a unhealthy world economy so I need extra margin of safety......

 

I think it is very likely it will hit $3

 

I am also watching this everyday too.  Unfortunately, I am worried that the BDI portends a tremendous slow down in the world economy.  The BDI was down 3% today to something like 830.  This is a multi-year low I think.  Of course, the BDI is very volatile, and it could be a seasonal problem.

 

The thing I am worried about is that the magnitude of the slowdown in China is greater than what is being let on to.  WE face the potential that the weak BDI portends a global slowdown.

 

If this is just seasonal or temporary weakness, then GLBS is being given away...

[randomep]

Hey all:

 

Anybody still watching this?

 

I doubled my position on the recent weakness.

 

I think at prices around $3.50/share, it is a great entry point.

 

Anybody else snapping up shares?

 

I am watching it everyday, I want to get back in at $3, and it is close now. BDI is at lows for the last 2-3 years that I've followed it, but really we are in a unhealthy world economy so I need extra margin of safety......

 

I think it is very likely it will hit $3

 

I am also watching this everyday too.  Unfortunately, I am worried that the BDI portends a tremendous slow down in the world economy.  The BDI was down 3% today to something like 830.  This is a multi-year low I think.  Of course, the BDI is very volatile, and it could be a seasonal problem.

 

The thing I am worried about is that the magnitude of the slowdown in China is greater than what is being let on to.  WE face the potential that the weak BDI portends a global slowdown.

 

If this is just seasonal or temporary weakness, then GLBS is being given away...

 

DJ: I agree with all that you say, except I would use the word short-term instead of temporary.

 

All I can say is one shouldn't discount ambiguity too severely. That's something I read in a UU (unknown and unknowable) paper from another thread.  Investing is quite like handicapping horses (like Berkhowitz or Buffett or someone used to do) your trade is your bet, the person on the other side of your GLBS trade doesn't know any better.

 

 

 

[intensityjp]

Anyone been buying?  Went below 3 today.  Was tempted to buy more but want to wait to see quarterly results before I do (I think they release Q2 in August).

 

 

[DTEJD1997]

Anyone been buying?  Went below 3 today.  Was tempted to buy more but want to wait to see quarterly results before I do (I think they release Q2 in August).

 

If the BDI goes up any AND GLBS stays well below $3/share, I'll double up my position...

 

If GLBS can't make money, who will?

 

If anything turns around, GLBS will be printing $$$$$ and paying a dividend.

 

Assuming there is no worldwide economic collapse, I just don't see how GLBS gets too much below $2.75/share.

 

Unfortunately, I've been wrong on this before.

[peter1234]

Anyone been buying?  Went below 3 today.  Was tempted to buy more but want to wait to see quarterly results before I do (I think they release Q2 in August).

 

If the BDI goes up any AND GLBS stays well below $3/share, I'll double up my position...

 

If GLBS can't make money, who will?

 

If anything turns around, GLBS will be printing $$$$$ and paying a dividend.

 

Assuming there is no worldwide economic collapse, I just don't see how GLBS gets too much below $2.75/share.

 

Unfortunately, I've been wrong on this before.

 

Curious on how you look at the BDI. Just seems so volatile. Do you use a moving average or crossing some threshold in determining whether it is going up?

 

TIA.

 

:)

[TwoCitiesCapital]

Anyone been buying?  Went below 3 today.  Was tempted to buy more but want to wait to see quarterly results before I do (I think they release Q2 in August).

 

If the BDI goes up any AND GLBS stays well below $3/share, I'll double up my position...

 

If GLBS can't make money, who will?

 

If anything turns around, GLBS will be printing $$$$$ and paying a dividend.

 

Assuming there is no worldwide economic collapse, I just don't see how GLBS gets too much below $2.75/share.

 

Unfortunately, I've been wrong on this before.

 

Hard to time things like this or guess the direction of BDI. Just because you get it right doesn't mean the management will either. They could always go fixed or floating on charter rates at the wrong time.

 

Prices are volatile and provide opportunity. I bought SB back in 2010 at 7.50. The price trended down for 2-3 years as the BDI collapsed by 80%, but I was even due to high dividends. Then they cut the dividend and stock collapsed by 50% to $3 where I doubled down and rode it back to $10 where I sold. Very profitable investment despite the movement in BDI taking it lower than it was when I bought. Its now back down to $7 and is becoming interesting again. There's two things I've learned from this 4 year forray.

 

1) Buy and sell based on value relative to book and not on attempts to forecast BDI. If you get in at a good price, it doesn't matter what the BDI does.

 

2) these are speculative trades and not long term investments. As well as I did in SB, management did far better because they get paid through so many different ways outside of just executive compensation. It doesn't even matter about BDI rates or company earnings.  They get sales commission, management fees, buying commissions, securities issued at favorable prices, their salaries, etc. They abuse their access to public markets (some more than others) and shareholder money. You don't want to be partnered with these people; just occasionally beside them when it's opportunistic.

 

I'll take a look at this name, but stop worrying about the BDI movements.

[peter1234]

Thanks for sharing. Makes a lot of sense.

 

Fascinating that you can make profitable investments despite the BDI moving against you.

 

Also, your views on (some) shipping managements are appreciated.

 

:)

[yadayada]

yeah agree, this is like a long term option, you get out as soon as the BDI is moving upwards. At 10k$ day rates currently, they make roughly 10 million. A lot of other operators lose or break even at these levels.

 

I think BDI was close to 30k$ in 2010. If it would average 30k$ for one year now, these guys would make that 10 million + twice their current revenue = 70 million$ in cash generated in one year. On a 30 million market cap. If they paid 25 million$ of that, and assume a 15% yeild that is 450% upside.

 

Because they operate well and generate cash even in the worst of times ( think like SB as well, was really cheap January 2013!), you don't really have to worry about the BDI not moving up for another 2-3 years. If it moves up for a while, you make like 4-5x your money.

 

Even if it would only move up to 15k$ a day for a year, then these guys generate 25 million$. They quickly pay down debt, and if it then  moves down again they can buy more ships or just pay out dividends. Net debt is about 78 million$. If they pay down 20 million$ with that 25 million, and pay out the other 5 million$, you probably get a 50-60 million$ stock.

 

 

 

I think the metrics you gotta look at are

-how much stock does management own?

-what is their ebitda when rates are at all time lows (or net cash from operations)

-market cap/ebitda

-and debt, this can't be out of control.

 

Think ship values are not that relevant and baked into the above , these things are rarely liquidated anyway in market bottoms unless they breach a lot of covenants and cannot generate cash with them.

[Laxputs]

1. Anybody have an analyst report that breaks down competitors profits in recent years and other comparable metrics of competitors in a simple spreadsheet? That would save some time.

 

2. Page F33 of most recent 10-K: "Long term debt, maturity 3-13 months: 12.9mm". Is that due and needs to be repaid in 12 months or is it just that it will start accruing interest and just the interest needs to be paid?

 

3. There was about one million pages of tax considerations in that daunting 10-K. Anybody take anything away besides that they will pay a very small tax for the admin base in Greece, and likely will not pay tax in US or anywhere else in the near future?

 

TIA

[yadayada]

they generate cash commpared to most drybulk operators out there.

 

They might sell a ship to pay that off if BDI stays this way.

 

And they do not pay taxes because they operate in international waters. Shipping companies are tax free.

[Laxputs]

Yes it's very clear they generate a lot of FCF even in this depressed shipping rate market.

 

But they have 12.4mm due to be repaid in 12 months plus 2.4mm of interest. I have them generating around 11mm EBITDA if TCE/Spot averages have a run rate of 1Q14 averages of 9.2mm. They have 7mm in cash but must keep 5mm on the balance sheet or they breach other covenants.

 

After interest payments and allotment for their dry-docking expenses every 2.5 years (which is a real cost imo and the depreciation of that should be included in a fcf calculation), they have around 13mm to pay 14.8mm debt due.

 

I would say they should definitely sell the Tiara Globe or things could get tight if they have any kind of hiccups and shipping rates do not pick up. There are 21 pages of risk factors. There are several material types of hiccups for an international shipping company with 7 ships (even with insurance). 

 

If the thesis was just "cover interest payments and wait for industry to rebound", I would buy; there is a 33% FCF yield here. But with 48mm due within three years, and them generating 10-15mm fcf around these rates, things are tighter than just interest payments, imo.  Disagree?

 

TIA

[yadayada]

yeah but it is trading pretty far below book value at these levels. And that is book value in depressed state. Even a little uptick in the BDI and you will see large amounts of cash and that won't be an issue. WIth the CEO owning 50% of the shares I doubt he will take too much risk.

 

Allthough I am now more pessimistic on the state of shipping industry. It seems a lot of money keeps flowing in. I will keep this one small for sure.

 

 

[Laxputs]

If the BDI upticks all problems are solved. The value of the fleet was written down because the earnings power that was associated with those ships was accurate prior 2012 and then started to degrade based on a market with less shipping demand and over-saturated with new builds from the boom. If the BDI goes up the book value will be reappraised higher. But the point is moot because they won't sell anyways in an improving shipping market.

 

If the BDI remains constant and they make 11mm EBITDA for 3 years and sell the Tiara Globe for 10mm, plus 2mm from the 7mm on hand, after interest they have around 38mm in three years with 48mm due. I'm don't believe this is an unrealistic scenario. If the market was saturated with many new builds and the global economy is slow on growth, the company will have to sell 1-2 ships.

 

But if other companies are not making money, they are selling their ships as well and the market price for ships lowers. And then their earnings power for next years debt repayments is reduced due to a smaller fleet, etc.

 

The worst part of this is, the company can withstand another massive hit to TCE rates. Like 50% lower than they are now, they can meet their interest payments! It's amazing. The low cost provider will win in this scenario but not if the low cost provider has more than interest payments. The low cost provider not only has 3x their market cap in interest bearing debt, but 1.5x their market cap in loans due in 3 years.

 

I would love to buy in. 3x FCF. Will be FCF positive no matter what the BDI does (disregarding loan repayment). Market near 26 year lows. Illiquid, under-followed 30mm market cap... I'm salivating. I just can't get passed the debt repayments.