Dry Bulk Sector Update (BUY): Risk/Reward Still Attractive

As we correctly pointed out in mid-April, share prices were likely to be impact from the falling iron ore prices in 2Q. A similar pattern is developing as this report hits the press, and is key to the way forward for rates and shares in 4Q17E. Nevertheless, the low supply growth leaves us confident in the continued cyclical recovery over the next two years, and we reiterate our BUY recommendation on the Dry Bulk sector as we view the risk/reward as highly attractive in a historical context.


Estimates: We revise our utilization forecast slightly up despite the short-term uncertainties mainly as we believe demand growth will continue to outpace net supply growth over the next few years. We forecast utilization to rise from 69% in 2016E to 79% in 2020E, corresponding to the BDI increasing from 675 in 2016 to 1,794 in 2020E. For Capesizes, we expect spot rates to rise from USD 7k/d in 2016 to 26k/d in 2020E and the market value of a 5y old Capesize to almost double from the 2016 lows to reach USD 46m by YE’20E. In the near term, we believe Capesize spot rates will average USD 15.7k/d in 4Q17E with peaks towards USD 25k/d

Key investment opportunities: Although investors are more or less at the mercy of Chinese authorities in the short term, we believe volatility can create a handsome return for the attentive investor. Looking further ahead, we remain confident that the low net supply growth will support further asset appreciation over the next two years. Our top picks are: 1) Genco Shipping (BUY, 21) for its cash flows and low LTV, 2) Star Bulk (BUY, 14) for its cash flows and high elasticity to asset values & 3) Seanergy Maritime (BUY, 2.7) for its binarity and immense upside potential.


Source: Gersemi Research, Bloomberg, company data

Disclaimer: The publisher currently owns shares in some of the companies covered in this report. More disclaimers at the end of the attached document

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