Hauled back from the brink of bankruptcy under a $2.2bn debt mountain in 2018, Danaos Corp expects to have no net debt at all this year.
“We expect to be net debt-free in a matter of two or three months,” chief financial officer Evangelos Chatzis told analysts in a conference call on Tuesday.
According to the company’s financial results released late on Monday, long-term debt stood at $396m at the end of the first quarter, compared with $359m in cash, equivalents and restricted cash.
The owner of 68 boxships got into this enviable position after accumulating $1.6bn in net profit over the past two years and continuing to post nine-digit profit figures this year.
Soaring profitability was the result of supply chain woes in the wake of the pandemic and of the company’s stake in Israeli operator Zim.
These factors catapulted net income to previously unimaginable heights and contracted charter revenue to $2.3bn through to 2028.
Net income slowed to $146m in the three months to the end of March, largely due to the absence of gains from the stake in Zim, which the Greek company sold down late last year.
This, however, did little to disappoint investors.
Danaos stock was trading up 6.9% at $63.06 per share in New York in early Tuesday trading, giving the company a market value of $1.285bn.
This, however, is still below its fixed net asset value of $2.69bn, and some analysts expressed the opinion that the share should be higher still.
“Danaos shares are mispriced in our opinion as [the company] continues to generate sizeable amounts of cash flow and is transitioning to a net cash position over the next one to two quarters,” Jefferies said in a research note on Tuesday, reiterating an $80-per-share target on the stock.
The company, therefore, kept its dividend steady for a third consecutive quarter at $0.75 per share.
As of March, chief executive John Coustas owned 44.5% of the company. The second-biggest shareholder with a 7.1% stake was RBF Capital — a boutique asset management that has been supporting Danaos for quite some time.
Apart from dividends, Danaos has so far bought back $40.5m-worth of its own stock under a share repurchase programme of up to $100m it announced in June last year.
Quick newbuilding mover
Cash also goes into newbuildings to renew the fleet in view of tighter environmental standards.
Confirming a TradeWinds report from earlier this month, the company disclosed that on 28 April, it signed for a pair of 6,000-teu ships, due for delivery in the fourth quarter of 2024 and second quarter of 2025.
Danaos did not reveal details of the ships, other than to say they are of “the latest eco-design characteristics”.
Shipbuilding sources told TradeWinds the 40-metre beam ice-class IA notation ships will be built at Qingdao Yangfan Shipbuilding in China, powered by conventional fuel and fitted with 1,150 reefer plugs.
Danaos is said to be paying between $60m and $63m each for the ships.
This was Danaos’ third newbuilding order since it broke a 15-year shipbuilding hiatus early last year. Its previous two orders were for two 7,100-teu ships at Dalian Shipbuilding Industry Co and for a quartet of methanol-ready 7,200-teu units at South Korea’s DH Shipbuilding.
Being able to finance newbuildings largely out of one’s own cash is vital to snatching hotly contested newbuilding slots.
“We moved very, very quickly,” Coustas told analysts on Tuesday about Danaos’ latest order, explaining that the whole deal with the shipyard closed rapidly, within less than a week.
”We booked the ships without worrying about finance, about charters or anything like that — the strength of our balance sheet is giving us extreme flexibility to grasp opportunities as soon as they come,” he said.