Scorpio Bulkers (NYSE: SALT) has reported better-than-expected first quarter results as it steered largely clear of the rate carnage in the larger vessel classes and benefited from its stake in Scorpio Tankers (NYSE: STNG).
Scorpio Bulkers reported a net loss of $3.5 million, or $0.05 per share, and adjusted net income of $4 million (excluding a non-cash write-down), or a gain of $0.08/share. The consensus forecast by analysts was for a loss of $0.11/share.
The year started terribly for dry bulk, particularly for owners of so-called ‘Capesize’ vessels that are 100,000 deadweight tons (DWT) or larger. Capesizes are heavily exposed to Chinese imports of iron ore and coal, particularly Chinese long-haul imports of iron ore from Brazil, which were severely impacted by the dam collapse in March that temporarily closed Vale’s Brucutu mine.
Scorpio Bulkers has no direct exposure to the troubled Capesize class. Its fleet encompasses two smaller-ship categories – 60,000-64,999 DWT ‘Ultramaxes’ and 82,000-83,000 DWT ‘Kamsarmaxes’ (a subcategory of the ‘Panamax’ class) – which carry a diverse range of cargoes and are not as exposed to the Chinese trades.
During the conference call, Scorpio Bulkers’ chief executive officer Emanuele Lauro explained, “It has been a testing period in dry bulk space. There have been particularly unhelpful headwinds, and as the past few months have demonstrated, we should expect the unexpected – but the worst may now be behind us.”
President Robert Bugbee added, “We didn’t come under pressure from Vale [the mining accident].”
The company’s Kamsarmaxes achieved average rates of $11,176 per day in the first quarter, down 13 percent year-on year, and its Ultramaxes averaged $9,177 per day, down 6 percent.
Jefferies analyst Randy Giveans highlighted the better prospects for owners of smaller bulkers. “Although dry bulk rates have fallen across the board, Panamax spot rates are outperforming Capesizes by 20 percent,” he said, pointing to Scorpio Bulkers as a top pick “if you think the smaller asset classes will outperform Capesizes into 2020.”
Meanwhile, Scorpio Bulkers has been actively raising new liquidity in 2019, creating a larger buffer to market weakness. It sold two Kamsarmaxes built in 2015 for a total of $48 million in March, raising $18.6 million in new liquidity after debt repayments.
It is also one of the leading proponents of raising cash via sale-and-leaseback (SLB) deals with primarily Chinese SLB houses. Most recently, it announced SLBs of six Ultramaxes for $52.6 million net after debt repayment. Altogether, Scorpio Bulkers has now sold and leased back 20 of its 54 owned or leased vessels – 13 to Chinese lessors.
Pareto Securities analysts Eirik Haavaldsen and Wilhelm Flider opined in a recent client note that “all [of Scorpio Bulkers’] liquidity concerns are gone after a series of measures” and given “Scorpio Bulkers’ sole exposure to the smaller asset classes,” the discount its stock is trading to net asset value “stands out.” They believe Scorpio Bulkers will outperform the sector.
On the conference call, Bugbee confirmed that more liquidity-raising transactions may be ahead, including both SLBs and outright vessel sales. But he emphasized that Scorpio Bulkers would not be selling any of its stake in sister Scorpio Tankers anytime soon.
“It’s way too early to take that investment off,” he affirmed. “We think STNG [Scorpio Tankers] has a long way to go. We think the product-tanker market could very shortly be in a position to give us some pretty extraordinary numbers.”