Dry mouth

A leading investment bank has initiated research coverage of the dry-bulk sector and four US-listed operators.

In a general overview about the segment Jonathan Chappell of Evercore Partners said the “multi-year trough” appears to be “squarely in the rearview mirror” but warned that the road to recovery is unlikely to be smooth.

“We believe that the supply/demand balance of this fleet will begin to tilt in the favor of owners in 2014, with a more material rate and asset value recovery likely to build momentum in 2015 after the massive overcapacity of 2009-12 is absorbed more fully,” the researcher added.

Chappell believes freight rates will continue to increase across the board throughout the year and expects to see daily levels in the capesize, panamax, supramax and handymaxes sectors to top out at around $30,000, $20,000, $18,000 and $16,000, respectively, in the fourth quarter.

Cream of the crop

Of the 18 US-listed equities the analyst categorized as bulker stocks he said the “cream of the crop” includes Scorpio Bulkers and Safe Bulkers, which landed “overweight” ratings. Diana Shipping and Navios Maritime Partners made the cut as well but were graded “equalweight”.

“There are 17 to 18 US-listed stocks that we would consider to be ‘dry bulk equities’ but all are not even close to created equal,” Chappell noted in the first of five reports Evercore emailed to clients Thursday evening.

“The multi-year deep rate trough wreaked havoc on the balance sheets and bank relationships of many of these companies, rendering several of the stocks as ‘penny stocks' with very little investible qualities’.”

“Still, with global capacity growth finally set to slow at a time when leading iron ore producers are planning to ramp-up output, the market outlook for the next two years appears more favorable,” the researcher continued.

“There are still a handful of equities of well-capitalized, well-managed firms that are positioned to not only emerge from the prolonged downturn, but also prosper amid improving cash flow generation and likely well-timed expansion.”