Spot focused companies with capesize exposure are the best way for investors to play the recovering dry cargo market, said Axia Capital as it took up coverage of five bulker owners today.
Analyst Clinton Webb branded the recovery real, noting high level of time charter and sale-and-purchase activity during the early months of 2017.
He counted bulkers of 10.8 million deadweight locked away on charters of one-year or more in the first quarter and 15.5 million deadweight changing hands on the sale-and-purchase market during the period.
“Although drybulk shares have advanced 30% year-to-date, an 11% pullback last week offers an attractive entry point into what we see as the early innings of a broader sector recovery,” he said.
Arguing “bigger was better”, Webb says capesizes are the best way to play the cycle.
“Capesize vessels are weighted almost entirely to the iron ore trade that we believe drives a continued sector recovery,” he said.
“As a result, sustained market strength should offer a disproportional benefit to capesize vessel values, which we believe could appreciate by as much as 47% on average vs. other vessel classes at 28%.”
The preference for capes and owners with large fleets was evident in the five owners initiated by the Axia analyst today.
Golden Ocean and Star Bulk have both been given a buy rating, alongside Scorpio bulkers, the only one of the trio without capesize exposure.
Webb says Golden Ocean’s takeover of Quintana cements its capesize leadership and is an “attractive way to play a drybulk recovery alongside shipping billionaire, John Fredriksen”.
Scale and strong operating leverage are a carrot for Star Bulk, while Scorpio Bulkers current valuation gap presents a strong buying opportunity, he adds.
Eagle Bulk Shipping and Gneco Shipping have both been given initial hold ratings.
Webb says that Eagle is not ready to fly just yet, while he feels “turning Genco into treasure remains a challenge”.
