Cantor Fitzgerald initiates coverage on DryShips with a Strong Buy Recommendation.
April 5, 2005
Cantor Fitzgerald initiated on March 29th, 2005 coverage of DryShips Inc. (NASDAQ: DRYS) with a STRONG BUY recommendation and a $28 price target. DryShips Inc. is a leading provider of international seaborne transportation services for dry bulk cargoes, including iron ore, coal, grain and minor bulks.
According to Natasha Boyden, the Cantor Fitzgerald analyst, the anticipated addition of 19 vessels in 2005 is expected to substantially increase DryShips' top and bottom lines. (After the report came out, DryShips announced it would acquire two more vessels.) Furthermore, ongoing strong global commodity demand is expected to keep rates at historically high levels and thereby benefit Dry Ships. Global port congestion would negate the impact of additional tonnage deliveries over the next several years. Finally, strong estimated free cash flow in 2006 would enable DryShips to continue consolidating the dry bulk carrier industry.
Cantor Fitzgerald estimates that following the integration of the newly acquired assets, Dry Ships free cash flow will be roughly $158 million ($5.47 per share) in 2005 and $195 million ($6.19 per share) in 2006. This could enable management to use the cash to continue consolidating the dry bulk industry.
Based on a market price of $ 20.40 on March 29th, when the report was issued, DryShips traded at 4.8x proforma Enterprise Value (EV) to the analyst's 2005 EBITDA estimate of $208 million and 4.1x the 2006 EBITDA estimate of $245 million. Natasha Borden believes that the stock still trades at a discount to the company's dry bulk carrier peer group average 2006 EV/EBITDA multiple of about 5.3x. Using a 5x EV/EBITDA multiple, the report sets a $ 28 target price for DryShips.
Regarding the dry bulk carrier industry, the report stated that in 2004, the blended dry bulk carrier spot rate surged to over $30,000 per vessel per day, from around $9,000 per vessel per day in the 2003, primarily due to increased demand for commodities from China and other rapidly growing economies, including India. The current blended spot rate stands at over $40,000 per vessel/day, combined with the potential for an underutilized fleet resulting from port congestion.
On April 1st, 2004, DryShips announced the agreement to acquire two additional Panamax bulk carriers built in 2004 and 2005. After taking delivery of all vessels, the company will have a fleet of 27 vessels, consisting of 4 capesize, 21 panamax and 2 handymax carriers aggregating 2.3 million dwt and with an average age of 9 years. By April 1st, 2005, the company had 18 vessels in operation with the remaining 9 vessels to be delivered mainly in April and May.
On April 4th, 2005, the company reported earnings per share of $ 0.71 for the two months ended December 31, 2004. Earnings per share was calculated on a weighted average number of basic and diluted shares of 15,400,000 for that period. DryShips operated a fleet of six vessels during that period and achieved an average daily time charter equivalent income of $39,672. On February 23, 2005 the Company announced that it has changed its financial year-end from October 31 to December 31. The change of the financial year-end brought the company's year-end into line with other US listed shipping companies.
For more info visit: www.dryships.com
By Capital Link, April 5th, 2005.
Contact:
Nicolas Bornozis
Capital Link, Inc. (New York)
Tel. 212-661-7566
E-mail: nbornozis@capitallink.com
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