Deutsche Bank 'Blue Sky' Scenario in Shipping, But Maintains Hold Ratings (SALT) (SBLK) (DSX)
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Deutsche Bank maintained a Hold rating on Scorpio Bulkers (NYSE: SALT) and raised its price target of $4.50 (from $3.00). Star Bulk Carriers (NASDAQ: SBLK) and Diana Shipping (NYSE: DSX) were also maintained a hold.
Analyst Amit Mehrotra assessed equity value in recovery or "blue sky scenario. However, as the market is still structurally oversupplied, in his view, recovery still remains a couple years away. Mehrotra's recovery scenario assumes average rates of $15,000 per day
Discussing Scorpio Bulkers the analyst said, "We see potential for SALT shares to more than double vs. current levels based on aforementioned recovery assumptions (to $10 from $4 currently). This is based on lower breakeven after push out of debt repayments, offset by lower earnings capacity from a slimmed down fleet. SALT also has the most desirable balance sheet, in our view, with LTV under 60% which we consider low at the bottom of the cycle. We have raised our PT to $4.50 (from $3) to reflect recent improvements."
On Star Bulk Carriers, the analyst said, "We estimate SBLK shares can almost quadruple in the aforementioned recovery scenario (to $18 from around $5 currently). This reflects the company’s low breakeven levels (about 20% below SALT) and larger fleet (50% higher revenue days vs. SALT). But with higher reward also comes higher risk: SBLK shares trade above our estimate of NAV, LTV levels are elevated, and liquidity cushion, while significant, is well below SALT (i.e. SALT has about 15% bigger cash balance while 50% few revenue days on a fully delivered basis)."
On Diana Shipping, Mehrotra said, "We see DSX shares doubling under our aforementioned recovery/blue sky scenario (to $6 from around $3 currently). This is less upside than SALT and SBLK given the company’s higher breakeven. There is also higher risk associated with the company’s ongoing lender negotiations, elevated LTV levels, and liquidity cushion, which is less than SALT and SBLK. This most likely reflects the fact that DSX is the only one of the three that has not engaged in dilutive equity financing, which has been to the benefit of legacy shareholders."
Shares of Scorpio Bulkers closed at $3.73 yesterday.
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