SBLK - Star Bulk Carriers (NASDAQ)

[Ferg]

SBLK released their Q3 results this morning.

I had picked a dividend for the quarter of around $1.25.  The declared dividend is.....drum roll please.....$1.20.  Not bad...I'm guessing more forecasts are all good and well until they aren't and they make a fool of me.

Based on the current SP of $19.64, a dividend of $1.20 gives a pre tax yield of 6.1% PER QUARTER, or ~24% p.a. assuming it can be maintained.

SBLK have confirmed their ship 'Star Pavlina' is stuck in Ukraine (see my earlier post) but the ship is safe and insurance is paying out for disruption so no worries there, for now.

I had stated earlier that fuel spreads were "over $300/tonne" for the quarter - SBLK achieved savings of $310/tonne.  This is worth $215-$220m to the bottom line of SBLK.

There were a few one-off costs in the latest result that impacted profitability, including a $14.9m write down of bunker (fuel) inventory that was not on my radar plus a high exec bonus scheme (which was not on my radar for this or the previous quarter!).  Basic EPS was $1.08 for the quarter, normalised is $1.34.

TCE's were slightly higher than I was forecasting.  Early September I predicted $22k/day, SBLK achieved $24,635 per day likely due to a recovery in charter rates after my post.  The higher TCE revenues were more than offset by higher one-off costs and the exec bonus scheme, hence the slightly lower earnings and dividend than I was predicting.

The balance sheet is looking strong.

SBLK have announced they have already locked in 66% of available days at an average TCE of $22,722/day - which is 7% lower than Q3.  I still need to run the numbers to work out Q4 profit.  But given the lower TCE value and higher number of dry docking days than I was expecting for Q4, this may result in a slightly reduced profit for Q4.  I am yet to look at this in detail.

In conclusion: happy holder and I'm looking beyond Q4 to 2023 when slower sailing speeds are enforced, inefficient capacity is removed from the market, and China bounces back.  In addition to capacity being physically removed from the market by ships being scrapped, capacity will be further reduced given slower sailing speeds for competitors will result in fewer shipments per annum.  The macro indicators are looking good.

Source: https://www.starbulk.com/gr/en/events-presentations/

[Ferg]

Q4 forecast:

Analysts are picking 88c EPS for Q4 2022. I am forecasting $1.05 - $1.10. I'm not expecting any fuel write offs this time, but might get hit with unexpected share based compensation (again).

I am also picking a dividend of $1.10 assuming no major blowout in DSO and around $45m of debt repayments and $23m in capex.

Lower interest rates due to swaps should start to deliver interest cost savings.  Note I have ignored any IFRS gains on swap revaluations in forecasting EPS.

EPS is based on a forecast TCE of around $23k/day. My estimated spread on their fuel cost savings is $240-$270/tonne (maybe $255?).

I have seen various analyst presentations saying the profits are not sustainable. They base these arguments on current BDI weakness without making mention of the scrubbers installed on 124 of 128 ships which deliver superior TCE rates and profits for SBLK.

Recent price strength suggests to me people know SBLK will beat the earnings forecast of 88c.

Edit: correction to EPS

[Ferg]

I like to watch videos of CEOs & senior executives talking about their business. IMO there are some smart cookies on this recent investor presentation for Star Bulk Carriers.  I also like the fact the CEO handed over to others and was not trying to control everything.

[Ferg]

Time to face the music.....Q4 results were released a couple of weeks ago.

I said EPS would be $1.05-$1.10 based on $23k/day TCE; actual was $0.90 with $20k/TCE.  Fuel savings spread was not disclosed and I see they have since removed their Q4 presso from their website (it had Q3 fuel spreads in error).

I said a dividend of $1.10 assuming $45m in debt repayments; actual is a *disappointing* $0.60 after debt prepayments of $118m ON TOP of scheduled repayments of $50m.....ouch.  That screwed my dividend estimate, but I suppose it's not a bad thing to pay down debt faster.  I say disappointing but it is still a good yield at (4 x 60c / 23.73 =) 10%, assuming 60c per quarter is maintainable.

I am picking a soggy quarter for Q1 of 2023 given the dry bulk shipping rates have collapsed (again) and 71% of their fleet has been pre-booked at a TCE of $15k/day.  TCE will be less than $14k - the effect of this will be a lower EPS, but a loss will be avoided so long as fuel savings spreads remain high....natural gas prices have rebounded off their Feb lows (which is a major low sulphur fuel cost) but there is a lag in spreads such that it currently sits at $200/tonne (previous qtr was around $250/tonne).

Current SP is showing strength despite my predictions of Q1 woe so I took some money off the table.  One TA is laughing at me for doing this as he has gone long....can't win them all!

I would be nervous holding too much through the next quarterly announcement given it will likely disappoint.

Until next time...

https://www.starbulk.com/gr/en/financial-summary/

Q4 forecast:

Analysts are picking 88c EPS for Q4 2022. I am forecasting $1.05 - $1.10. I'm not expecting any fuel write offs this time, but might get hit with unexpected share based compensation (again).

I am also picking a dividend of $1.10 assuming no major blowout in DSO and around $45m of debt repayments and $23m in capex.

EPS is based on a forecast TCE of around $23k/day. My estimated spread on their fuel cost savings is $240-$270/tonne (maybe $255?).

[Ferg]

SBLK will likely report a considerably lower profit for Q1 on May 16th.

Analysts are picking $0.29c EPS (same quarter last year $1.67c, last quarter $0.84c).

I'm picking something closer to $0.38c on the basis TCEs will be around $15,500 (a reduction of -43% vs same quarter last year and a reduction of -20% versus last quarter) and average fuel spread savings of $203/tonne (up versus 1Q22 but lower than the rest of 2022). If they achieve this TCE it will be an impressive achievement given the low BDI for Q1 of around 1,010.

The dividend will likely be slashed - I am picking $0.30c for the quarter (same quarter last year $1.65, last quarter $0.60c).

Apparently Q1 is historically a poor quarter for dry bulk shippers.  Given the BDI so far this quarter is +47% higher versus last quarter, that says Q2 will have better prices (and revenues) than Q1.  However, fuel spread savings are lower which translates to a lower TCE for SBLK - so far they are about 40% lower than last quarter.  Although the revenue impact of higher prices will outweigh the lower fuel cost savings for a nett positive increase to profitability for Q2.

[Ferg]

Q1 EPS was $0.44 (analysts picked $0.29, I picked $0.38).  Dividend is $0.35c - I predicted $0.30c.

TCE was lower than I expected, but so were expenses.  Fuel savings estimated at $203/tonne by me, actual achieved was $185 which contributed to the lower TCE, as did a lower fleet utilisation and lower spot rates.

SBLK management achieved a TCE rate roughly +40% higher than the BDI for the quarter which is pretty impressive (where the BDI is a bundle of dry bulk spot rates measured daily).  Rolling 4 quarter average is around +38% premium versus spot rates.  Impressive.

Operating profit was lower than I forecast but NPAT was boosted by a one off gain.  The ship Star Pavlina which was stuck in Ukraine has had an insurance payout and is being treated as lost given it was there for 1 year.  This gave a nice gain, which was partly offset by impairment charges on 2 vessels that will sell in Q2 and higher financing costs than budgeted (<- I need to look into that!).

SBLK have committed to leasing 7 new vessels over the course of 2024.  The full benefit of this will be seen in 2025, but I expect the these vessels may be replacing some of the older vessels in their fleet so there may not be a significant change to the overall fleet capacity.

Q2 is shaping up to be better than Q1, but nowhere near the glory days....yet.  Breakeven over the past 4 quarters has averaged around $12.5k TCE per day - whilst SBLK continue to achieve TCE's in excess of this, they will continue to be profitable.

[Ferg]

Q2 was soggier than expected, EPS 43c (Q1 was 44c).  40c dividend, 8-9% annualised yield based on todays price. Average buyback SP in Q2 of $19.85, June average buyback price was under $18.

Investor presentation for Q2 here.

The CEO, Hamish Norton, talks about the results and strategy here. If the interviewer wore a bow tie he could be a Colonel Sanders doppelganger.

Q3 is currently shaping up to be similar to Q2, but Q3 will include opportunistic realised gains on ship sales of ~$20m.

Per the YT interview with the CEO, it appears some of the macro factors at play are occurring slower than expected.