2020 Bulkers Initiation (Hold, TP NOK 31)

2020 Bulkers is the newly established dry bulk investment vehicle of Mr Tor Olav Trøim (50% ownership), in partnership with Titan Opportunities Fund (20%) and former Clarksons Platou partner Fredrik Halvorsen (20%). We estimate a NAV of NOK 16.3/sh, but base our NOK 31/sh target price on a weighted average of future asset price appreciation models after a 10% discount. We believe a small discount is warranted as there are still some road to be covered before realizing the potential value appreciation behind our forecast, including a likely equity raise in order to pay the next newbuilding installments in 3Q18E (or options declared in 1Q18E).

The company currently consists of two firm Newcastlemax newbuildings with late 2019 delivery contracted at USD 44.23m each (vs our generic valuation of USD 44.17m). The company also has optional berths for another six sister vessels with delivery from 4Q19 to 2Q20.

Given the current USD 10m in equity vs USD 88.5m in paid and remaining capex, the asset value elasticity of NAV is an unprecedented 90%. This means that our TP of NOK 31 implies a resale vessel value of USD 46m, equal to our current generic vessel valuation. Assuming resale values increase only 10% implies a share price upon point of delivery of NOK 38/sh.

The only problem is that these calculation assumes no new equity. We believe leverage will decrease as capex has to be financed. Assuming a LTV of 70% leaves us with a asset value elasticity of NAV of 26%, and a 35% asset appreciation behind our NOK 31/sh target price, which is fair in our view.

Thus, we initiate our coverage with a Hold recommendation when comparing our target price vs the “market price” of NOK 30.5 seen in extremely thin trading so far on the N-OTC since listing this Monday. “Off-balance sheet” upside ahead could be provided from news flow and overly optimistic analysts eager for corporate business, which in turn could lead to accretive shares-for-ships deals and rising NAV/sh, all else equal. Still, we find better valuation in GNK (BUY, USD 21) and SBLK (BUY, USD 14) looking one year ahead. Before that, we expect the dry bulk space to soften before the year end and into 1H18E, before renewed optimism lifts shares to new highs.

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