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Month: December 2013
Santa Claus Rally In Shipping Sector
Just about the night before Christmas and I have the right to brag about the results of our commitment to the recovery in the shipping sector.
We EARN our performance fee :
DryShips also has a strong exposure to the spot market, with 20 out of its 28 Panamax vessels, its two Supramax vessels, and one out of its 12 Capesize vessels operating on a spot basis, which should aid earnings going forward if the BDI continues to climb upward as international drybulk trade demand growth seems to indicate. The company has estimated that if spot rates rise by $5,000, it will add $65.8 mill. and $79.3 mill. to its EBITDA or free cash flow generation, respectively, and the numbers rise even higher to $131.6 mill. and $158.7 mill. respectively if spot rates rise by $10,000, and to $263.2 mill. and $317.3 mill. if spot rates rise by $20,000.
We have been following the activities of leading fund managers via numerous articles on Seeking Alpha, and on our website, and have observed a strong correlation between the activities of leading fund managers and the price performance of stocks in the succeeding quarters. Hence, we view the small accumulation of DryShips shares by leading fund managers in the latest 3Q/2013 as a positive, lending further credence to our thesis that DryShips shares are in buy territory based on the projected turnaround in the BDI index and the promising prospects for its majority owned subsidiary ORIG.
DRYSHIPS INC(DRYS:NASDAQ, US)
3.93USD
0.24(6.50%)Volume:
0.24(6.50%)Volume:Above Average
As of market close 23 Dec 2013.
| Open | 3.72 | P/E Ratio (TTM) | — | |
| Last Bid/Size | 3.92 / 30 | EPS (TTM) | -0.86 | |
| Last Ask/Size | 3.93 / 45 | Next Earnings | — | |
| Previous Close | 3.69 | Beta | 2.97 | |
| Volume | 13,375,548 | Last Dividend | — | |
| Average Volume | 9,362,839 | Dividend Yield | 0.00% | |
| Day High | 3.95 | Ex-Dividend Date | — | |
| Day Low | 3.69 | Shares Outstanding | 403.8M | |
| 52 Week High | 4.00 | # of Floating Shares | 347.0658M | |
| 52 Week Low | 1.53 | Short Interest as % of Float | 4.17% |
- QUOTE DETAILS
| Open | 9.98 | P/E Ratio (TTM) | 9.2x | |
| Last Bid/Size | 9.50 / 5 | EPS (TTM) | 1.08 | |
| Last Ask/Size | 11.00 / 3 | Next Earnings | 17 Feb 2014 | |
| Previous Close | 9.98 | Beta | 1.69 | |
| Volume | 806,616 | Quarterly Dividend | 0.0600 | |
| Average Volume | 805,088 | Dividend Yield | 2.33% | |
| Day High | 10.57 | Ex-Dividend Date | 20 Nov 2013 | |
| Day Low | 9.90 | Shares Outstanding | 83.4M | |
| 52 Week High | 10.57 | # of Floating Shares | 41.96572M | |
| 52 Week Low | 3.15 | Short Interest as % of Float | 1.39% |
NORDIC AMERICAN TANKER LTD(NAT:NYSE, US)
As of market close 23 Dec 2013.
QUOTE DETAILS
| Open | 9.24 | P/E Ratio (TTM) | — | |
| Last Bid/Size | 9.70 / 7 | EPS (TTM) | -2.13 | |
| Last Ask/Size | 9.71 / 19 | Next Earnings | 10 Feb 2014 | |
| Previous Close | 9.06 | Beta | 1.25 | |
| Volume | 3,038,216 | Quarterly Dividend | 0.1600 | |
| Average Volume | 1,603,536 | Dividend Yield | 6.58% | |
| Day High | 9.83 | Ex-Dividend Date | 26 Nov 2013 | |
| Day Low | 9.16 | Shares Outstanding | 74.2M | |
| 52 Week High | 12.00 | # of Floating Shares | 71.04741M | |
| 52 Week Low | 7.00 | Short Interest as % of Float | 13.24% |
STAR BULK CARRIERS CORP(SBLK:NASDAQ, US)
As of market close 23 Dec 2013.
QUOTE DETAILS
| Open | 13.04 | P/E Ratio (TTM) | — | |
| Last Bid/Size | 12.62 / 6 | EPS (TTM) | -57.05 | |
| Last Ask/Size | 13.10 / 3 | Next Earnings | — | |
| Previous Close | 12.34 | Beta | 1.89 | |
| Volume | 452,161 | Last Dividend | — | |
| Average Volume | 282,985 | Dividend Yield | 0.00% | |
| Day High | 13.43 | Ex-Dividend Date | — | |
| Day Low | 12.57 | Shares Outstanding | 29.1M | |
| 52 Week High | 13.43 | # of Floating Shares | 28.41736M | |
| 52 Week Low | 5.28 | Short Interest as % of Float | 0.59% |
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Holiday Schedule – back January 8 2014
Holiday Schedule
Our Stock Market blog will return January 8th
emails will be answered over the holidays.
We wish you and your families every best wish for the holidays and the New Year.
Jack
..
Lol
Safe Bulkers Inc. New 52 Week High
Confirming our faith in a shipping sector recovery .
This will be our last entry on the blog for the year – we may have the odd entry and some not so odd . The regular edition returns January 8 , 2014
Jack A. Bass Managed Accounts will receive a bonus of 3% at year end for an additional total cash return to the 1 % per month.
SAFE BULKERS INC(SB:NYSE, US)
As of 17 Dec 2013 at 2:58 PM EST.
QUOTE DETAILS
| Open | 9.03 | P/E Ratio (TTM) | 6.6x | |
| Last Bid/Size | 9.41 / 5 | EPS (TTM) | 1.21 | |
| Last Ask/Size | 9.44 / 13 | Next Earnings | 17 Feb 2014 | |
| Previous Close | 9.09 | Beta | 1.69 | |
| Volume | 405,018 | Quarterly Dividend | 0.0600 | |
| Average Volume | 630,654 | Dividend Yield | 2.55% | |
| Day High | 9.44 | Ex-Dividend Date | 20 Nov 2013 | |
| Day Low | 9.02 | Shares Outstanding | 82.7M | |
| 52 Week High | 9.44 | # of Floating Shares | 41.22136M | |
| 52 Week Low | 3.15 | Short Interest as % of Float | 1.39% |
Anadarko Petroleum Update Target $108
APC : NYSE : US$83.67
BUY
Target: US$108.00
COMPANY DESCRIPTION:
Anadarko Petroleum is an oil and gas E&P company with global operations in countries including the United States, Algeria, Ghana and Mozambique. The company is headquartered in The Woodlands, TX.
All amounts in US$ unless otherwise noted.
Energy — Oil and Gas, Exploration and Production
FOUND LIABLE IN TRONOX SUIT; DAMAGES TO EXCEED FORECAST
Investment recommendation
We would BUY shares of APC on weakness in light of the company being
ruled liable in the Tronox suit. The decision comes as unwelcome news
as the estimated damages range from $5.15B to $14.17B. We had
believed that the case would be resolved for considerably less. While we
are lowering our price target, we believe APC has a first-rate asset base
and therefore we maintain our BUY rating.
Key points
Critically, APC/Kerr-McGee found guilty of intent: Plaintiffs claimed
that environmental liabilities were intentionally offloaded onto
Tronox at the time of its spin-off causing it to declare bankruptcy.
The judge ruled that was indeed the case.
Damages exceed what the market had discounted: We had said that
APC’s shares were being discounted ~$5/share to reflect the
possibility of a negative Tronox outcome. The given range of
damages equates to $10-$28/share. While this is not as large as the
$25B (or $50/sh) that the plaintiffs sought, it is materially above
what we believed the Street had been factoring in.
Final damage amount still TBD; APC can appeal: The defendants
will be allowed the opportunity to argue whether some amount of
the damages can be offset, hence the $9B range of estimates. We
would expect APC to appeal the ruling in any case.
Valuation
We value APC using a 20% discounted NAV and a multiple of
EV/EBITDA. We are lowering our NAV by $19/share to reflect the
midpoint of the expected damages range. Also, we are now assigning a
4.5x EV/EBITDA multi
lululemon athletica inc. Update
I can’t resist the temptation to make an issue of the pants or the stock being the butt of jokes in poor taste.
LULU : NASDAQ : US$60.39
BUY
Target: US$82.00
COMPANY DESCRIPTION:
lululemon athletica Inc. is a designer and retailer of
technical athletic apparel operating owned retail stores
primarily in North America and Australia. The company
offers a range of performance apparel and accessories
for women, men and female youth. Its apparel
assortment, including items such as fitness pants, shorts,
tops and jackets, is designed for healthy lifestyle
activities like yoga, running and general fitness.
Consumer & Retail — Footwear and Apparel
FRUSTRATING BUT FIXABLE; LOWERING ’14 EPS, MAINTAIN BUY
Investment recommendation
Despite a solid Q3 report (45c vs. our 41c estimate), LULU guided to a
highly disappointing flat Q4 comp implying a 1300bp two year
deceleration from Q3. Traffic issues (2/3) coupled with continued
product delivery delays (1/3) were the culprits. We surmise that
generally poor mall traffic (-5% in Nov. and -10% in Dec. thus far),
exacerbated by the poor comments by founder Chip Wilson, is at play
rather than competition taking share from LULU as Q4 comp guidance
with e-commerce would have been a strong +8%. We continue to view
LULU as a premier athletic retailer whose current setbacks, while
frustrating, are transitory. That said, the stock is likely to tread water in
the near term until the next catalyst (ICR) and/or Q4 earnings in March.
While LULU’s growth potential remains vast, it must begin to show
progress on the investments it is making or risk alienating more of its
customers. 2014 should be that year of improvement, and thus we
maintain our BUY.
Investment highlights
We lowered our 2014 EPS estimate by 28c to $2.35 (20% EPS
growth) largely driven by a reduced comp outlook to 6.4% from
14.7% previously. Our new estimates assume no improvement in
the business (either in traffic or supply chain), an assumption we
view as highly conservative given our belief that none of LULU’s
current issues are systemic or competitively driven.
Valuation
Our $82 target (from $90) is based on 35x 2014E EPS/20x EBITDA/DCF.
Bankers Petroleum Ltd
BNK : TSX : C$4.04
BNK : AIM
BUY
Target: C$6.00
COMPANY DESCRIPTION:
Bankers’ operations are focused on developing heavy oil
assets in Albania, which include rights to develop the
Patos-Marinza and Kucova heavy oil fields (both 100%
interest) during the 25-year licence period. Bankers has
an opportunity to unlock immense potential from its 7.7
billion barrels oil-in-place Patos-Marinza field by applying
modern techniques to optimize recovery factors, expand
its resource base, and increase production.
All amounts in US$ unless otherwise noted.
Energy — Oil and Gas, Exploration and Production
FOCUSED ON BOTTOM LINE IN 2014
Investment recommendation
Bankers Petroleum announced its 2014 budget, projecting capital
expenditures of $313 million and production growth of 10-15% over
2013. The budget reflects a 27% increase over the 2013E program and
is the largest in the company’s history. Approximately 90% of the budget
will be directed toward development work, while the remainder is
earmarked for enhanced recovery initiatives and new ventures like
horizontal wells at Kuçova and 3D seismic on Block F. We have revised
our estimates to reflect updated guidance, resulting in a 2014E NAV of
C$7.05 (from C$7.15). With numerous cost-cutting initiatives planned
for the coming year, we believe 2014E operating funds could surprise to
the upside (although we have not yet incorporated a reduction in
operating costs). With a 12-month target price of C$6.00/share and a
potential return to target of 47%, we reiterate our BUY recommendation.
Investment highlights
The company has doubled its budget for enhanced recovery
initiatives, which if successful, should generate lower decline rates
and a higher overall recovery factor.
We expect that operating funds will outpace capital expenditures by
~10% based on a 2014 Brent price of $104/bbl. At $100/bbl, we
forecast a balanced budget.
Valuation
We use a DCF model to value Bankers. Based on our 2014E estimates
Bankers is trading at a multiple of 0.57x our risked NAV, 2.9x EV/DACF
and $46,840 per flowing barrel. This is significantly below the domestic
junior averages of 0.8x NAV, 5.6x EV/DACF, and $73,200 per flowing
barrel, despite Bankers’ better-than-average netbacks and favourable
debt levels. With a 12-month target of C$6.00 and a potential return of
49%, we reiterate our BUY recommendation.
Silver Wheaton Corporation Update Target $30
SLW : TSX : C$21.59
SLW : NYSE
BUY
Target: C$30.00
COMPANY DESCRIPTION:
Silver Wheaton is uniquely positioned as the purest silver
producer. The company’s asset base consists of silver
purchase agreements with the San Dimas and
Penasquito mines in Mexico, Pascua-Lama project in
Chile/Argentina, Zinkgruvan mine in Sweden, Yauliyacu
mine in Peru, Stratoni mine in Greece. Most recent
streaming deals with Hudbay minerals (silver and gold
streams at 777 and Constancia) and Vale (gold streams
at Salobo and Sudbury mines).
All amounts in C$ unless otherwise noted
Metals and Mining — Precious Metals and Minerals
MINERAL PARK FINDS A BUYER;
KENO HILL NOT EXPECTED UNTIL 2015; MAINTAIN BUY RATING AND C$30.00 TARGET
Investment recommendation
We maintain our BUY rating on Silver Wheaton. We believe the
perceived increased risk with respect to Pascua construction and
Rosemont permitting has been largely discounted in the company’s
shares. SLW boasts a robust growth profile and continues to generate
strong free cash flow at spot gold and silver prices.
Investment highlights
We updated our model to reinstate the stream from Mercator’s
Mineral Park mine in Arizona following the proposed merger with
Intergeo MMC, which is expected to inject cash to sustain
operations. Based on Mercator’s previous mine plan, not assuming
any changes are made following the merger, we value the Mineral
Park stream at US$108 million or 1.4% of NAV.
We also updated our model to incorporate the new PEA for Alexco’s
Keno Hill project in the Yukon. Production re-start is now expected
approximately one year later in Q1/15. Our valuation for Keno Hill
has declined from US$116 million to US$50 million. Given the
significant financing risk surrounding the re-start, we continue to
discount the stream by 50%. Alexco is in violation of the completion
agreement based on achieving throughput of 400tpd by YE14. We
assume SLW will extend the deadline given the option value.
Overall, our 2014 production forecast of 39.4mozs remains largely
unchanged. Our 2013 EPS and CFPS estimates remain materially
unchanged at $1.06 and $1.50, respectively.
Valuation
We are maintaining our target price of C$30.00, which is predicated on
a 1.30x multiple to our forward curve derived operating NAV estimate of
C$25.29 (previously C$25.44) plus net debt and other assets.
Approach Resources Inc. BUY
AREX : NASDAQ : US$24.49
BUY
Target: US$30.00
COMPANY DESCRIPTION:
Approach Resources is an independent energy company engaged in the exploration, development, production and acquisition of unconventional natural gas and oil properties onshore in the US. The company focuses on finding and developing high-quality, long-lived resource plays.
All amounts in US$ unless otherwise noted.
Energy — Oil and Gas, Exploration and Production
LOWERING PRICE TARGET ON NAV AND ESTIMATE REDUCTIONS; STOCK LOOKS OVERSOLD
Investment recommendation
AREX is a pure play Permian name, with 149K net mostly contiguous acres in the southern Midland Basin. After several flat quarters, production should grow nicely in Q4/13, while costs continue to come down. As AREX accelerates development in the horizontal Wolfcamp, we expect the gap between the current stock price and our NAV to narrow.
Investment highlights
AREX announced 14 well completions for Q3 vs. only 12 in all of H1/13. The completions were back end loaded, resulting in an exit rate from the quarter of 11.1 Mboe/d. There were some notable completions during the quarter, including the Baker B 256H (Wolfcamp B) in central Pangea, which IP’d at 1,334 Boe/d, the company’s best initial producer to date.
AREX exited Q3/13 with ~$340M in liquidity, consisting of a $315M undrawn borrowing base and $25M of cash. Subsequent to the end of the quarter, the company closed the sale of the Wildcat oil pipeline and got an increase in the borrowing base to $350M, resulting in pro forma liquidity of $477M, which comfortably covers the ~$265M of outspend we are modeling through the end of 2014.
Sarepta Therapeutics
SRPT : NASDAQ : US$13.05
BUY
Target: US$20.00
COMPANY DESCRIPTION:
Sarepta Therapeutics is a biopharmaceuticals company that is focused on the discovery and development of unique, first-inclass therapeutics for the treatment of life-threatening rare and infectious diseases. Lead product candidate eteplirsen, a phosphodiamidate (PMO) morpholino antisense oligomer for the treatment of Duchenne muscular dystrophy (DMD), is currently in Ph2 trials.
All amounts in US$ unless otherwise noted.
Investment recommendation
Reiterate BUY; lowering target to $20 on eteplirsen’s (Etep) now significantly delayed potential in Duchenne muscular dystrophy (DMD). We still predict eventual clinical success with broad uptake driven by good safety/efficacy but the recent update call leaves us with much uncertainty in etep’s path forward. While etep clinical data to date suggests to us good efficacy and best-in-class safety, timelines for further Phase 2/3 development and regulatory approval could be anyone’s guess. Our new $20 pNPV target assumes a postponed launch and lower chance of success.
Investment highlights
Q3 EPS: $(1.24) compared to $(0.65) consensus, our $(0.59) estimate. Revenue of $4.2M compared to $4.4M consensus, our estimate of $8.1M.
FDA reversal may have broad negative implications for all of DMD drug development, beyond exon-51 and SRPT. What we find most disturbing about FDA’s communication to SRPT is the issue the agency appears to have in the 11th hour with 6MWT and understanding of DMD natural history. Maybe these issues can be mitigated with a placebo arm, but this may hamstring drug development for smaller DMD populations, including all of SRPT’s and potentially RNA’s pipeline.
Placebo arm would delay Ph3 data even without biopsies; a novel, unproven composite endpoint would vastly increase clinical risk.
Given FDA’s dismissive tone on dystrophin, no biopsy shouldn’t really bother the agency unless it reverts to its prior opinion that a 4th biopsy is important.
We see SRPT shares as short-term dead money; but oversold as clarity is almost inevitable in the next 12 months. We think the next etep trial may be delayed much later than Q2/14 as some newfangled composite endpoint is extracted from meta-analysese of DMD natural history data. SRPT’s estimate of only a 2 year launch delay may be aggressive; we estimate 3+ yrs
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