A sale of New York-listed Genco Shipping & Trading “may ultimately be the best path forward” in the view of one senior equity analyst, but it is not an opinion that is shared by the bulker company’s management team.
Stifel analyst Ben Nolan made the somewhat surprising suggestion in a client note on Thursday after taking part in non-deal investor meetings with Genco management.
The advice quickly kicked up something of a sandstorm of a response.
Chief executive John Wobensmith said he had not been present for the meetings but understood they went well and was not expecting Stifel’s take.
“I’m a little surprised by it,” Wobensmith told TradeWinds. “We’ve never thought of ourselves as sub-scale, but we do have aspirations to grow. I’ve said many times before that we feel we’ve created the best risk-return model in the industry. We’ve positioned ourselves to grow while still maintaining that model.”
Wobensmith appeared particularly irked by the notion that Genco is blocked from growth because its stock trades at a substantial discount to net asset value.
“The entire industry is trading below NAV, whether it’s bulkers, tankers, containers or gas,” he said.
“The statement that we can’t grow is just false. We have $330m in capacity on our revolving loan facility. Just with that, we can grow our capesize fleet by 50% with no new shares. And there are companies trading below NAV who are still able to get deals done at NAV. We have aspirations to grow and we feel we’ve created the right vehicle to deliver on that growth.”
In a telephone interview on Thursday following the release of the note, Nolan clarified that he was voicing his own opinion and not anything more.
“It’s not something that management said, and, in fact, it’s not even something I expect them to do,” Nolan said. “It’s purely my opinion. They’re trading at a pretty steep discount to NAV and I just feel it will be difficult for them to grow the company.”
Nolan also had said in his original note that management admitted “they are sub-scale” with respect to the necessary size as a public company.
He clarified in remarks to TradeWinds that this referred only to trading liquidity and had been amended in a follow-up note to also read as his observation, not management’s.
Stifel has maintained a “buy” rating on Genco shares, which were trading around $18.88 when the note was written.
Nolan offered the following comments in the note: “While the company would love to grow particularly in the capesize market, it may not happen unless the share price rises to something closer to $25/share.
“The flip side would be, if GNK is not going to have efficient equity capital, it may make more sense to sell the company to someone who does, ie a larger public company with shares trading closer to NAV like SBLK or GOGL, or a buyer who would pay cash. Management would certainly be open to selling, but that is complicated as well, albeit perhaps not quite as much.”
Nolan referred to the GNK ticker symbol for Genco and that of the two larger companies, Star Bulk Carriers of Greece, which trades as SBLK, and the John Fredriksen-backed Golden Ocean Group, which is GOGL.
Genco has been involved in a years-long campaign to pay down indebtedness to a goal of net-debt zero, in conjunction with a policy that guarantees dividends even in lower rates environments.
Wobensmith has expressed confidence that it is just a matter of time before investors respond to the policy with an upward “repricing” of the stock.
Genco has been through an eventful year in which it faced an out-of-the-blue proxy fight from Greek shipowner-turned-activist investor George Economou.
Genco mounted a vigorous public defence, pointing out Economou’s own track record of shareholder-value destruction. The magnate decided to exit the battle on the eve of the proxy vote in April while selling his stock for millions of dollars in profits.
During the same period, Genco’s closest comparable company as a dry bulk owner – Connecticut-based Eagle Bulk Shipping – was acquired by Star Bulk in an all-stock deal.
Genco also scored on corporate governance grounds, finishing for the fourth straight year atop analyst Michael Webber’s ESG Scorecard, as revealed earlier on Thursday by TradeWinds’ Streetwise financial newsletter.
Genco owns and operates a fleet of 43 bulkers: 16 capesizes, 15 ultramaxes and 12 supramaxes. The average age is 12.7 years.
Genco has a current market capitalisation of about $800m.
