Safe Bulkers Inc. (SB, Financial), the $247 million Marshall Islands-based shipping and ports company, reported its second-quarter and first-half 2017 results in July. Safe Bulkers reported a 34% rise in revenue year over year in the first half to $68.3 million and narrower losses of (-)$13.4 million compared to (-)$33.8 million in the year earlier period.
In addition to higher revenue, the company nearly halved its voyage expenses to $2.5 million and had a 95.6% drop in its losses on asset sales to (-)$120,000, which helped reduce its losses for the period.
Valuations
Safe Bulkers has recorded losses since fiscal year 2015, including the recent 10 quarters. As a result, there is no trailing price-earnings (P/E) multiple. Meanwhile, the company had a price-book (P/B) ratio of 0.47 times compared to the industry median of 1.24 times and a price-sales (P/S) ratio of 1.83 times versus 1.14 times.
The company does not have a trailing dividend yield, but the average revenue estimates for fiscal 2017 indicate a forward P/S multiple of 1.8 times.
Total returns
Despite the weak performance so far this year, Safe Bulkers provided 111.3% total gains for its shareholders compared to the broader S&P 500 index’s 11.7% (Morningstar).
Safe Bulkers
According to filings, Safe Bulkers was incorporated in the Marshall Islands in December 2007 under the Business Corporations Act. Ă‚ The company acquires ownership of various subsidiaries that either owned or were scheduled to own vessels.
The company is controlled by the Hajioannou family, who have a long history of operating and investing in the international shipping industry, including a long history of vessel ownership.
Vassos Hajioannou, the late father of CEO Polys Hajioannou, first invested in shipping in 1958. Polys Hajioannou has been actively involved in the industry since 1987, when he joined the predecessor of Safety Management.
The Hajioannou family owns approximately 51.75% of Safe Bulkers’ outstanding common stock as of February.
Safe Bulkers is an international provider of marine dry-bulk transportation services, transporting bulk cargoes, particularly coal, grain and iron ore, along worldwide shipping routes.
As of February, Safe Bulkers had a fleet of 38 dry-bulk vessels with an aggregate carrying capacity of 3,421,800 deadweight tons (DWT) and an average age of 6.6 years, making it one of the world’s youngest fleets of Panamax, Kamsarmax, Post-Panamax and Capesize class vessels.
The company’s fleet is expected to grow through 2018 as the result of the delivery of one contracted Japanese Kamsarmax class newbuild vessel (1).
Safe Bulkers employ its vessels on both period time charters and spot time charters, according to its assessment of market conditions, with some of the world’s largest consumers of marine dry-bulk transportation services.
Time charter equivalent
The time charter equivalent rate, or TCE rate, represents Safe Bulkers’ charter revenues minus commissions and voyage expenses during a period divided by the number of available days during said period.
In the first half, the TCE rate was $9,698 versus $7,013 in the prior-year period.
Fleet utilization
Fleet utilization is calculated by dividing the number of operating days during the period by the number of ownership days during that period.
In the first half, fleet utilization was at 97.7% compared to 96.8% last year.
Sales and profits
In the past three years, Safe Bulkers registered average revenue decline of (-)16.2%.
Cash, debt and book value
As of June, Safe Bulkers had $89.6 million in cash, restricted cash and time deposits, and $599.3 million in debt with a debt-equity ratio of 1.11 times versus 1 the year before. Overall debt declined by $8.3 million while equity declined by $57.3 million.
No blue sky elements were observed (goodwill and intangibles), while book value declined 9.6% year over year to $542 million.
Cash flow
In the first half, Safe Bulkers’ cash flow from operations fell to (-)$1 million compared to $26.6 million in the prior-year period. Meanwhile, financing activities took out (-)$66 million net compared to (-)$14.7 million last year, resulting in a (-)$47.7 reduction in cash and cash equivalents in the first half.
The cash flow summary
Over the past three years, Safe Bulkers allocated $328 million to capital expenditures, raised $72 million in debt (net repayments and other financing), raised $149 million in preferred and common share issuances, allocated $61 million to dividends and accumulated (-)$246 million in free cash outflow.
Conclusion
Broadly looking at Safe Bulkers’ recent years of operation would indicate poor operational performances until the recent half, when the company’s overall revenue rose 34%. Specifically, the TCE rate—a key metric—rose 38% year over year.
Meanwhile, the company's interest expenses managed to push its bottom line down to losses for the period. Analysts forecast the company will continue to deliver EPS loss this fiscal year despite a marked increase in revenue.
In addition, the company has had a leveraged balance sheet but weak cash flow performance over the past several years.
Analysts have an average price target of $2.42 a share versus $2.43 at the time of writing. Using analysts' revenue estimates multiplied by a three-year P/S multiple average followed by a 25% margin yields a price of $1.12 a share.
On the other hand, there could be a 76% increase in share price to $4.3 a share should Safe Bulkers trade at 0.8 times (five-year average) its book value.
In summary, Safe Bulkers is a hold.
Notes
- Company filings
Upon delivery of the last contracted newbuild, assuming the company does not acquire any additional vessels or dispose of any vessels, the fleet will be comprised of 39 vessels having an aggregate carrying capacity of 3,503,400 dwt.
Disclosure: I have Safe Bulkers preferred shares.
