Deutsche Bank analyst Amit Mehrotra believes bulker giant Star Bulk Carriers has enough liquidity to ride out current dire markets.
He said he does not see the need for dilutive equity financing and maintained a buy rating on the US-listed owner's shares.
DB has previously said the company has a balance sheet that prudently balances risk and reward, and a management team that "we view as good long-term stewards of capital within the confines of what they can control."
"And our views have not changed in this regard, despite the severe state of the dry bulk market," Mehrotra added.
"To be sure, Star Bulk's liquidity position will be tested in the coming quarters. But based on our analysis, we see enough cushion."
DB rates its break-even rate as one of the lowest in the industry at $11,500 per day.
Of this, $4,800 is opex and general/administration costs, with $2,000 per day of interest costs and about $4,600 of debt repayments.
Good coverage in 2020
"This means that at any TCE rate above $6,800 per day, Star Bulk is increasing its net asset value (NAV) via net debt reduction," Mehrotra added.
Coverage is viewed as good, with the company disclosing last month that 47% of its second quarter days were booked at $11,600 per day, and 45% of third quarter days at $11,200.
"We estimate that this leaves 18,000 days exposed to the spot market for 2Q-4Q 2020, which is in the context of...$125m of cash on the balance sheet at the end of March," Mehrotra added.
The positive implication is Star Bulk can endure an average TCE of just $7,900 per day on these exposed days to meet its minimum liquidity requirement of about $58m, DB believes.
"In this context we are quite positive on Star Bulk, especially after the recent sell-off which appears to be over-discounting need for diluting financing," Mehrotra said.
