Norwegian investment bank Cleaves Securities has halted coverage of Scorpio Bulkers as the market assesses its rapid transformation from a bulker owner to a wind-farm ship player.
Last week, Cleaves raised shareholders' concerns about the slew of what it called "discounted" bulker sales carried out by the company to fund its wind turbine installation vessel (WTIV) order at Daewoo Shipbuilding & Marine Engineering in South Korea.
The investment bank said in a note to clients: "We suspend our coverage of Scorpio Bulkers for an indefinite period of time."
Cleaves' last recommendation was "buy" with a target price of $17 per share on 22 October.
The stock closed down 2% in New York at $12.11 following the third-quarter loss announced on Tuesday.
Cleaves views the disposals as being at prices significantly below the vessels' value.
The investment bank calculated prices at 13% below its own valuations and comparable sale-and-purchase deals for the kamsarmaxes, and 6% below the market for the ultramaxes.
Cleaves head of research Joakim Hannisdahl said last week: "Although the potential to entice green capital investments with the inherent lower-required return could be attractive for Scorpio Bulkers, we view the rapid sale of vessels into illiquid markets at a discount to be unfavourable for Scorpio Bulkers' dry bulk shipping investors."
Passed on to ESG analysts?
He added: "If the company is successful in rebranding ... into an ESG [environmental, social and corporate governance] company ... we will potentially hand over coverage of the company to our more ESG-focused colleagues."
Hannisdahl told TradeWinds on Wednesday: "It is solely due to the shift away from shipping towards WTIVs.
"We had planned to suspend coverage since they announced it in August, and the timing seemed right given the rapid divestment of ships."
He added: "We might reinitiate coverage again, but then under an ESG umbrella and most likely by one of my colleagues."
Other industry observers have cited the dearth of financing for secondhand acquisitions and rock-bottom newbuilding prices as factors that can lower sales levels below analysts' estimates, while a long list of other bulker sales casts doubt on the illiquid nature of the sector.
The question of discounted sales was addressed by Scorpio Bulkers president Robert Bugbee on the company's conference call on Tuesday.
"The last people to know are probably you guys," Bugbee said of the equity analysts, saying the S&P market in dry bulk is deep and active.
Healthy sign for secondhand sales
"We haven't had to appoint any shipbrokers to market individual vessels. All we've done is respond to inbound enquiry. That's a very healthy sign."
Scorpio is "days" away from signing a contract with DSME for delivery of its first WTIV newbuilding in 2023, advancing the letter of intent announced in August, the company has said. An order for four ships in total is likely at a cost of up to $290m each.
The company posted a $36.3m loss for the third quarter, amid costs related to its investment in sister company Scorpio Tankers and impairments on two vessel sales.
US investment bank Jefferies said the loss per share of $1.14 was below its estimate of $0.71, primarily due to lower than expected time-charter earnings.
$40m banked from sales
The company has brought in $40.3m from selling eight bulkers in recent weeks, however, and expects to sell all its ships in the next six months, the investment bank added.
Jefferies expects another six bulkers to be sold in the final months of this year.
The investment bank's analysts Randy Giveans, Christopher Robertson and Chadd Tribo are also reducing their fourth-quarter and 2021 profit estimates.
Jefferies has a "hold" rating on the stock with a target price of $15 per share.
"SALT [Scorpio Bulkers] has received a wide variety of interest for its remaining vessels, including for individual vessels as well as larger blocks," the analysts said, referring to the company by its ticker symbol on the New York Stock Exchange.
Monaco-headquartered Scorpio has already been in talks with potential customers, including US companies, and believes there is a great deal of commercial visibility in terms of a future pipeline of projects, the analysts said.
The company is deferring installing scrubbers on 13 vessels, as it expects to sell the ships soon.
There will be no meaningful payments on the first WTIV until 2022.
