Analyst Amit Mehrotra raised the shipowner from hold to buy after its second quarter report showed it was nearing the end of a long restructuring tunnel.

Scorpio Bulkers’s overall loss of $138.65m largely comprised of one-off elements on vessel sales with its operating performance better than Wall Street had been expecting.

Mehrotra explained the upgrade came amid the belief the it had $190m in excess cash after its last equity issue, while spot rates have moved higher and the company’s first positive EBITDA quarter awaits in the third quarter of this year.

In addition, the sale of 20 vessels has narrowed or even closed the company’s discount to net asset value, making NAV a better gauge of equity value in a stable/recovering environment, the analyst explained in a post-results report.

“We believe these drivers will have the effect of significantly improving sentiment on shares,” Mehrotra said.

Long and bumpy road

As TradeWinds reported yesterday Scorpio is closing in on funding for its final four unfinanced newbuildings.

A restructuring effort has seen the owner offload 20 vessels in total from its orderbook.

Emanuele Lauro, chief executive of Scorpio Bulkers, told analysts on a conference call the company had set its sales in position for a long-term recovery.

“It is more likely that we will experience bumps along the roads rather than a straight line recovery,” he said. “This is at least what we expect.”

Bulker rates, led by capes, have pulled away from their April trough and are pushing year-to-date highs having risen for much of the past four weeks.

“It's difficult to say whether this improvement is the beginning of a sustained recovery or just a spike,” Lauro said.

“As I said a few seconds ago, management intention has been to really position the company for a long-term recovery. We would welcome a prompt recovery of course. But we have plan for a long-term one.”

Significant free cash flow

Ben Nolan of Stifel said the company has more than sufficient liquidity and committed financing to complete the capex program with the total debt balance never rising above $1.0bn.

"Upon the completion of the capex program we believe the firm should begin generating significant free cash flow for growth and debt repayment," he said.

"We expect as new Capesize vessels are delivered in the near-term, those ships are likely to be chartered for intermediate periods which should lock in a portion of that cash flow at least until the capex program is completed."