TOPS - Topships

[yadayada]

saw it on VIC, so investigated it, and it looks dirt cheap. They will have 6 oil tankers delivered over the next 1.5 years. These are very fuel efficient ships, with special hulls and engines to be fuel efficient.. The oil tanker market is completely depressed right now due to the US not importing much oil anymore. But apparantly locations of refinery's are changing.

 

They will have revenue of about 33-40 million under their medium term time charters. Im not sure what to expect in FCF, but if it spikes up, this one is insanely cheap, if it doesn't it still trades on a 2-5x FCF yield? I expect them to generate anywhere between 8-20 million$ in net cash?

 

CEO owns 62% of shares. And they are using a privately managed (by the CEO) related party to manage their ships. Not too thrilled about that. But expenses seem to be in line historically. And he owns 62%, so I dont expect him to really canibalize himself here.

 

prospectus:

http://www.sec.gov/Archives/edgar/data/1296484/000119312514229050/d717115d424b4.htm

[rayfinkle]

Any update here? Been digging in all weekend and am intrigued. Anyone familiar with the industry to the point they can comment on the liquidity of nav?

[rayfinkle]

Meaning the order book in particular

[rayfinkle]

saw it on VIC, so investigated it, and it looks dirt cheap. They will have 6 oil tankers delivered over the next 1.5 years. These are very fuel efficient ships, with special hulls and engines to be fuel efficient.. The oil tanker market is completely depressed right now due to the US not importing much oil anymore. But apparantly locations of refinery's are changing.

 

They will have revenue of about 33-40 million under their medium term time charters. Im not sure what to expect in FCF, but if it spikes up, this one is insanely cheap, if it doesn't it still trades on a 2-5x FCF yield? I expect them to generate anywhere between 8-20 million$ in net cash?

 

CEO owns 62% of shares. And they are using a privately managed (by the CEO) related party to manage their ships. Not too thrilled about that. But expenses seem to be in line historically. And he owns 62%, so I dont expect him to really canibalize himself here.

 

prospectus:

http://www.sec.gov/Archives/edgar/data/1296484/000119312514229050/d717115d424b4.htm

 

So in VIC they make the claim that:

-a low value equity raise is creating forced selling;

-this forced selling tide will wash over, and when it does there will be a large "balance sheet" margin of safety (cash + book order net of liabilities)

 

Has anyone looked at this sort of situation before?

[ItsAValueTrap]

1- You should look at the market value of the ships versus the market capitalization.

 

Often the shipping guys will arb the difference between the two.  George Economou of Dryships does that a lot.  I never liked the integrity of the management teams in the business... lots of related party transactions and management is often overpaid.

 

2- It'll take elbow grease but I believe you can get market quotes on everything... even the ships currently under construction.  There is an active market for this stuff and people trade ships often.

 

3- A lazy way of handling shipping is to buy whatever asset type Economou is buying, and sell whatever he is selling.  So if Economou is selling his own ships to Dryships, you should probably be selling that type of ship.  But there is risk because nobody is good at predicting shipping prices.

[yadayada]

Tanker rates are extremely volatile. Read that second shipping book, they do a good job explaining the tanker market.

 

It seems these tankers have a cost advantage. The write up does not pay a lot of attention to different FCF scenario's. I think this is the same sort of deal as with GLBS.

 

So these ships will get 16k$ a day. They operate pretty much the entire year right? Let's assume 5 out of 6 ships do. That is 29 million in revenue. usually operating costs are like 9-10k$ a day. So that would be about 12 million in cash flow. But this does not include depreciation. Feel free to correct me on this.

 

I think book value is not very interesting here, possibly cheaper operating costs and cash flow are.

 

And the expectation is that refinery's will be moved closer to the source of crude oil. This will require product tankers instead of crude oil tankers. This will also lengthen the size of the shipping routes. The write up states that Crude tankers cannot be easily converted into product tankers, but I have my doubts about that. Anyone know more on that?

 

Would also read this:

http://www.sec.gov/Archives/edgar/data/1296484/000119312514267749/d744586df1.htm

search for refinery.

[rayfinkle]

Thanks gents. Will keep digging

[yadayada]

http://gcaptain.com/scorpio-dominates-biggest-wager/

 

seems friedriksen, one of the most savviest ship traders, is loading up big on product tankers and bulk carriers.

[Myth465]

I was excited with the VIC write up but then noticed it looks like they werent counting debt.

 

Also incentives dont make sense for us.

CEO owns a bunch of ships he cant pay for. Got a good price, but cant buy them outright. Transfer them to the company and markets it as a NCAV play on the value of the ships in excess of the purchase price.

 

Signs a contract to crew the ships.

Is able to exchange a fairly risky business model (owning the whole thing), to one where he owns a spread on the labour (no risk here, can terminate everyone and likley have TOPS pay the fees) and only partially owns the ships.

 

It doesnt add up inmo. Could be missing something.

[yadayada]

myth , they will be financed with debt? They are partially financed with equity right? So you gotta look at cash flow coming off these ships. Also look at a possibility of a good year for oil tankers. Those markets have been depressed for quite a while now. One good year and they earn their current market cap at once.

[Myth465]

If there is debt involved it throws things off a bit.

 

The idea is being sold as a NCAV story. The write up seems to say the ships are worth xx over the debt due to a change in rates.

Seems like a bad way to value a going concern if there is no plan to sell the ships.

 

Whats the cash flow vs EV value.

Tough to see in the write up. I followed a few of the comments, then went to bed.

Put in the too hard basket.

 

I hate shipping, been looking for the turn for a few years though..

[yadayada]

yeah i would like ot know that as well. They say they got 16k$ day rates, but little about costs. They operate cheaper though. Im curious though, the shipping man states that the people leasing these ships always find a way to get out of these contracts though, if the spot rates are much lower.

 

Looking at 2011-2012, you get an idea about operating costs.

 

they were about 60%.

 

If they get 16k$ a day, and manage to have utilization of like 95%, that is 35 million$, or about 14 million$ in net cash. Not accounting for cheaper operating costs here.

 

This does not count in depreciation btw. But unless they buy new ships, this should be almost non existant. They also don't pay taxes because it is a shipping company.

 

So it could be like 16-17 million$.

 

Obviously if rates double, revenue is 70 million, and operating costs are still around 21-22 million$.

 

This also does not include interest payments.

 

 

As for assets, they bought 6 ships for 34 million each. So that is 204 million. The equity + warrant offering got them 30 million.

 

but the prospectus says this:

As of the date of this prospectus, we have remaining contractual commitments for the acquisition of our fleet totaling approximately $127.5 million.

 

Seems like that number is a bit higher? Anyway, 8% interest, and this thing will generate about 10 million in cash.

 

Does not look too cheap, seems like GLBS or SBLK are better picks.

[Myth465]

My issue is its there job to sell me on this.

I dont want to spend hours digging this out.

 

As you said I can find shipping stocks yielding 15% - 20% cash on equity returns.

If the asset values hold true, then they win big, if not then they loss.

 

I dont even have that level of detail here in an easy to find manner.

 

Seems pretty simple - Buy me, we will throw off x in cash when all ships are delivered and x in cash in 2014, 2015, and 2016.

We will also go buy more ships which yeild x in cash if possible.

 

This is why you should buy, at 5 x we are worth A, 10x B, and NCAV of ships is C.

Share price is D.  A,B,C are all higher than D. You should buy.

 

Seems like an easy story to tell, they arent telling the story like that so I got bored and moved on. To float shares without that easy story doesnt make a lot of sense.

Tells me the story isnt that easy, and Mr Market is likely closer to right than not. SSW knows how to tell a story and they have been doing it for years....

 

NCAV for ships needs an owner looking to sell the ships, otherwise its BS.

Similar to Overseas given their raw steel value which was multiples of the SP, then going bankrupt.