Stifel has issued a “buy” rating to New York-listed bulker owner Genco Shipping & Trading on expectations of strong seasonal demand and China’s economy recovering from Covid-19 lockdowns.
The US investment bank, which began covering its shares on Thursday, foresees China’s likely economic stimulus payments and reopening as a boon to the country’s iron-ore hungry construction sector.
“On top of that, the orderbook is at a multi-decade low, so any slight increase in demand should push rates up meaningfully,” analyst Ben Nolan wrote in a note on Thursday.
Stifel also issued a $20 price target for the stock, which has fallen to $12.12 on Thursday from $14.10 on 20 September.
“We view the recent pullback in shares as an opportunity to play a strengthening winter,” Nolan wrote.
Stifel gives Genco shares a net asset valuation of $23.10.
He said that a dry bulk equity pullback, or decline from a recent high, provides a “good entry point” for investors because bulker shares offer an attractive investment thesis, given the high demand and low supply of vessels.
Stifel also considers Genco trading 77% of its fleet of 17 capesizes and 27 smaller bulkers on the spot market the ability to take advantage of high spot rates, but that also makes Genco vulnerable to downturns in the spot market, it said.
Genco also has the advantage of low leverage, having lowered its debt by $218m to 12% of capitalisation.
“The strong balance sheet, paired with healthy day rates, has now positioned the company to pay increased dividends that will be formulaically paid out as operating cash flow less debt service, maintenance capex, and a modest reserve,” Nolan wrote.
Stifel said Genco should be able to pay an estimated $2.86 per share in dividends over the next year, which equals a 23% yield based on the current share price.
