A US investment bank sees Connecticut-based Eagle Bulk Shipping falling to a bigger-than-expected loss for the quarter past, and returns from its exhaust-gas scrubbers are part of the reason.

Analyst Liam Burke of B Riley Securities is calling for a $1.17 per share loss from the New York-listed company, a fairly significant departure from his original estimate of a $0.69 loss per share.

Burke said in a client note on Monday that a lower-than-expected scrubber premium is the basis for his revisions.

Subscribe to Green Seas
TradeWinds’ weekly newsletter on sustainability and the business of the ocean digs into environmental issues every week in the maritime industries. Get it in your inbox by subscribing.

Shipowners that installed scrubbers to meet the International Maritime Organization’s 2020 emissions rules can burn cheaper high sulphur fuel, while those not using the devices pay more for low sulphur bunkers.

But the spread in fuel prices varies, and this year’s narrowing is impacting Eagle Bulk, which has scrubbers on nearly all of its fleet’s 52 supramaxes and ultramaxes.

For example, the average spread for Eagle Bulk’s vessels in the second quarter was $117 per tonne, resulting in premium earnings of $1,602 per day per vessel.

The spread narrowed to an average of $86 for the third quarter, bringing the estimated premium down to $1,178 per day.

Burke said he had initially modelled a premium of $1,500 per day per Eagle Bulk vessel but has sliced the figure to $1,000 per day in his new estimates.

However, for technical accounting reasons, the damage to Eagle Bulk’s earnings per share figure may appear worse than the actual reduction caused by fuel spreads.

Burke initially saw Eagle Bulk losing $8.8m for the third quarter, its first deficit of 2023. He now puts the number at $10.9m.

The catch? Eagle Bulk has outstanding convertible notes that can be redeemed as ordinary shares. It is required to count the prospective shares in its overall measure of outstanding stock in some accounting situations but not others.

B Riley initially used 12.9m shares – including the convertibles–to arrive at his EPS figure. His revised note is based on 9.5m shares, which excludes the notes as is proper in this case. It, nonetheless, inflates Eagle Bulk’s EPS loss.

Eagle Bulk Shipping owns the 61,500-dwt Stamford Eagle (built 2016). Photo: Eagle Bulk Shipping

Burke argues that Eagle Bulk shares are undervalued at their current trading level of around $43. He has a “buy” rating and a $72 price target on the stock.

The analyst calculates that Eagle Bulk shares lost 12.5% of their value during the quarter despite a Baltic Supramax Index that rose 70% over the same period.

Subscribe to Streetwise
Ship finance is a riddle industry players need to solve to survive in a capital-intense business. In the latest newsletter by TradeWinds, finance correspondent Joe Brady helps you unravel its mysteries

“We would be looking for a healthy rebound in EGLE shares with the company in an excellent position, with the right assets, to maximize its return in a sector that is seeing a steadily improving macro environment as charter rates see steady recovery,” Burke told clients.

“The market for midsize bulkers remains elevated with longer ton-mile routes caused by vessels avoiding the congested Panama Canal. China’s and India’s growing appetite for imported coal and a healthy grain trade should sustain demand for Eagle’s medium-sized vessels.”

One more factor that might prove encouraging for the Gary Vogel-led shipowner is that the current high sulphur fuel oil spread sits at about $125 per tonne, a nice jump from the quarter past, although prospects remain unpredictable for the remainder of the fourth quarter.