Source: Trade Winds
December 12th 2014
A growing number of equity analysts believe lackluster freight rates will continue to plague many publicly-traded bulker owners in the coming year.
Some Wall Street forecasters are urging investors not to turn their backs on the segment altogether, however, despite the unsettling outlook for 2015.
On Friday an analyst at Clarkson Capital Markets upgraded shares of one New York-quoted bulker operator and downgraded two others.
Omar Nokta stamped Diana Shipping with a “buy” rating but changed his recommendation for Star Bulk Carriers and Knightsbridge Shipping to “hold”.
In a note to clients the researcher said asset values and the cash flow potential of some operators are at risk of deterioration but argued that, despite what he described as a “weak backdrop”, there are still a handful of “interesting investment opportunities”.
Nokta encouraged investors to accumulate shares of companies that are poised to generate positive cash flow and boast strong balance sheets.
“We do not believe vessel prices will drop to early 2013 trough levels, but we see that as the base for which investors will value the equities due to the uncertainty ahead,” he said.
“Accordingly, we feel companies with strong balance sheets and lower break-even rates will outperform. We highlight Diana Shipping (DSX) as the top name to play due to its strong balance sheet, discount valuation and low break‑even rate.”
Nokta, who pointed out that dry-bulk equities have plummeted 63% on average since the start of 2014, said he downgraded shares of Star Bulk and Knightsbridge “due to their combination of high spot exposure and above-average financial gearing”.