DryShips (DRYS, Financial) is a shipping company with significant investments in offshore drilling. The company is trying to improve its business in different ways, which is why it could be a smart buy. Let's take a closer look at DryShips' moves.
A closer look at the business
For the dry bulk segment, DryShips owns two Supramax vessels, 24 Panamax and 13 Capesize vessels. At present, the fleet has a contract backlog of about 300 million until 2016. Moreover, a majority of the fleet is directed toward the spot markets where solid market recovery is expected by 2015.
For the tanker segment, DryShips have six Aframax and four Suezmax vessels having an NAV of nearly 300 million and an average age of more than two years, completely positioned towards the spot markets.
DryShips have invested nearly $1.1 billion in Ocean rig depending on the self-market price and into two short-term credit facilities amounting to $320 million.
DryShips aims to add significant value particularly on the capital markets and financing side by working closely with its subsidiary.
Making a comeback
DryShips returned to profitability and posted positive consolidated results for the third quarter of 2014, compared to significant loss suffered during the same period last year. The key reasons behind these positive results are an additional quarter of greater utilization for drilling segment and higher contribution to its bottomline from its campus segment.
DryShips consolidated earnings improved during the third quarter of 2014 over the same period last year, primarily due to the expansion of average daily time charter equivalent levels on its tanker vessels to nearly 21,000 per day from 16,000.
The Suezmax and Aframax tankers illustrated considerable reversal and competitive rates by the close of the second quarter of 2014.
On the dry bulk side, DryShips' average TCE levels remained unchanged from previous quarters owing to TCE coverage on mainstream of its Capesize fleet and lower spot rates on its Panamax fleet.
In October, DryShips signed state-of-the-art documentation for the 170 million Nordea senior secured credit facility. Ocean Rig witnessed contract extensions linked with the drilling contracts of drillships for Mykonos and Corcovado in Brazil, having a total backlog of more than 1.1 billion. In October, Ocean Rig announced a dividend of $0.19 per share be paid in November.
In the fourth quarter 2014, DryShips has 41% fixed rate coverage with an average daily TCE rate of about 25,600 per day. Its fixed coverage is reducing to 35% for 2015 and consecutively 29% for 2016 but combined, these years have significant average daily TCE in a range of 28,000 to 29,000. The considerable usage of the tanker and dry bulk spot markets coupled with significant improvements in these sectors are believed to add significant cash flow to its bottom line. DryShips is keen on successfully executing upon its strategy to operate all its vessels, both wet and dry, on the spot market for gaining in a long-term with the anticipated sustainable recovery in these markets late in 2014 and 2015.
Positive prospects
The combined iron ore exports in the third quarter for Australia and Brazil increased 16% on a year-over-year basis with Australia’s exports enhancing greatly by 26% year-over-year. In addition, Chinese third quarter iron ore imports increased 11.7% year-over-year although steel production increased by just 4%.
The solid positioning of DryShips in the additional crane cargoes market coupled with impressive Atlantic positioning and India’s expanding coal appetite have led Panamax and Capesize rates to expand by 49% and 94% respectively giving confidence for the estimated seasonal expansion in trade grade for the fourth quarter.
The seaborne transportation demand is estimated to accelerate with the displacement of some expenses and poor quality domestic Chinese production and continued inferior cost iron ore supply in the market.
The dry bulk fleet in 2014 is forecasted to expand by about 5.9%, up from the 5% noted in 2013 but still much below the impressive figures of 17% and 15% in 2010 and 2011, respectively.
Conclusion
DryShips is seeing continuous improvements on different fronts. As a result, the company's revenue and earnings should get better in the future, making it a worthy investment candidate.
