Just 2 weeks ago there have been a slew of results release on companies i own and i plan to write about them. It just that work have been pretty busy thus i can only update briefly here until now.
The first company i am covering is Courage Marine. despite the fall in Baltic Dry Shipping Index, results have been pretty strong.
- Profit for the period improved by 67% from the previous year.
- Operating cashflow generated was 20 million vs 7.8 million from previous year.
Freight rates have been very volatile during the past few months, with the BDI collapsing to the 5,600 level during the end of January this year after climbing to an all-time record above the 11,000 level from November 2007. The BDI is currently at around the 7,000 level. The Group believes that the market conditions will remain positive based on the perceived strong demand from China for raw materials.
We sent four vessels for dry-docking in 1H08 and they were out of deployment for a total of about 120 days. We expect to send two more vessels for dry-docking during 2H08 and they are expected to be out of deployment for a total of approximately 90 days.
The Group will maintain its cost-efficient structure and focus on keeping its fleet well deployed and running efficiently. Assuming that the BDI stays at around the current level and barring any unforeseen circumstances, the Group expects to continue to do well in the second half of FY2008.
Despite the cyclical nature of the shipping industry, Courage Marine’s strategy to concentrate on cost and not taking unnecessary risks can either be seen as prudent or they could be viewed as gutless to take advantage of the commodities boom to ride the wave.
I like a company that is prudent but not taking advantage of the opportunites out there does not go down welll with this investor. However, when u have a high ROIC such as Courage Marine, you don’t question too much how they earn their beef since you know you probably knows much much less than these managers who have been doing shipping for such a long time.
Courage Marine is one of the stocks on my dividend screener. Here i use a rather conservative dividend per share since shipping stocks like Courage and Singapore Shipping are prone to really good times and givign out one time big dividends. That is not what we want on my dividend screener. What we want is a consistent high yield or at least a good yield of 6-7% that is increasing yearly. This would explain why the yield based on current price is just 6.7%. Lets just say that my div yield is almost 20% from the last payout.
Courage Marine generates a good operating cashflow and have rather low expenditure. Most likely, payouts will continue long term at 6-7% with the occasional big payouts.
At current price, its EV/EBITDA is only 3.2 times, which means if you believe this cyclical shipping boom will last at least 3 years, it will take 3 years of zero operating growth to earn back what you pay for this company.
Do be advice to rational your valuation on cyclical shipping play. Your yield depends on your entry vs the cyclical nature of the industry. Ensure you do not buy it at a high premium.