Star Bulk VS. Grindrod and Golden Ocean Stock: A Comparison

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Star Bulk Carriers (SBLK) is a global dry bulk company with 128 dry bulk carriers ranging from 52,000 to 210,000 DWT, headquartered in Greece. In my last Star Bulk article, Star Bulk is a buy around $22, I valued the stock at $26. The stock price fell from $22 on January 31, 2021 to $31 after the company reported 4th Quarter 2021 Earnings February 17, 2021. However, last week SBLK stock price fell back below $30. Using the new quarterly data, I updated my valuation on the stock to $30 per share. Additionally, I estimate a 1Q 2022 TCE per day of $26397 for the company. I’m bullish on SBLK priced below $30 due to the company’s healthy capital structure.

SBLK 4Q 2021 financial results

In its fourth quarter financial results, Star Bulk reported travel revenue of $499.9 million, compared to travel revenue of $186 million in Q4 2020, up 169%. SBLK reported earnings of $2.96 per diluted share in the fourth quarter of 2021, compared to diluted EPS of $0.30 in the same period last year. In addition, Star Bulk increased its average number of vessels in 4Q 2021 to 128 from 116 in 4Q 2020. “Favorable market conditions in 2021 enabled the company to achieve record profitability. On a basis of full year, we managed to have our best year,” commented the CEO of Star Bulk. As a result, the current cash balance increased to $593.7 million and helped Star Bulk reduce its net debt to $938.8 million (see Figure 1). Additionally, Star Bulk announced a dividend of $2 per share for the 4th quarter of 2021. By focusing on sustainable management, Star Bulk earned the highest score among US-listed dry bulk companies on the environmental, social and governance (ESG) front.

Figure 1 – Star Bulk Adjusted Net Debt

Figure 1 - Bulk Star

Investor presentation 4Q 2021

Fleet details of SBLK, GRIN and GOGL

With 128 vessels, Star Bulk’s average vessel count increased 10.3% year-on-year in Q4 2021. The company’s ownership days increased from 10,472 in Q4 2020 to 11,442 in Q4 2021. quarter of 2021. However, its charter days fell from 339 to 107 in the mentioned period. This shows that despite the low charter rates in 2021, Star Bulk has not used the charter strategy as much as Golden Ocean (GOGL) and Grindrod Shipping (GRIN) (see my recent articles on GOGL and GRIN).

Star Bulk reported Q4 2021 daily operating expenses per vessel of $4,604, compared to Q4 2020 daily operating expenses per vessel of $4,320, up 6.6%. In Q4 2021, GRIN’s daily OPEX per vessel increased from $5,312 in Q4 2020 to $5,767 in Q4 2021, up 8.6%. Table 1 shows that SBLK’s revenue per vessel increased by 144% YoY in Q4 2021, which is lower than GRIN’s annual revenue growth rate per vessel of 144% and higher than the annual growth rate of revenue per GOGL vessel by 87%. However, SBLK’s OPEX per vessel in Q4 2021 increased 15% YoY, which is lower than GRIN’s OPEX per vessel annual growth rate of 42% and higher than annual growth in GOGL’s operating expenses per vessel of 4%. I calculated the annual growth in revenue against cost of sales and the annual growth in gross margin of SBLK, GRIN and GOGL in the 4th quarter of 2021.

Table 1 shows that SBLK’s annual revenue growth relative to cost of sales is greater than that of GRIN and GOGL. Moreover, from 4Q 2020 to 4Q 2021, SBLK’s gross margin increased more than GRIN and GOGL. So, compared to Grindrod and Golden Ocean, Star Bulk performed more efficiently in 2021. Star Bulk’s strategy of using its own ships rather than chartering them worked well for its shareholders. Additionally, as long as time charter rates increase, Star Bulk may perform better than GRIN and GOGL in the coming quarters.

Table 1 – Star Bulk vs. Grindrod Shipping and Golden Ocean

Table 1 - Star Bulk vs.  Grindrod Shipping and Golden Ocean

Author’s calculations based on financial reports from SBLK, GRIN and GOGL

Estimated TCE of SBLK per day

In my last article on SBLK, I explained how TCE rates correlate with the Baltic Dry Index. Figure 2 shows the daily TCE of SBLK, GRIN and GOGL against the quarterly Baltic Dry Index. Also, in my last article on GRIN, I mentioned that due to increasing time charter rates in 2022, how we can estimate a reliable TCE rate for a dry bulk business. Using the quarterly Baltic Dry Index and dry weather charter estimates, I estimate 4Q 2021 TCE per day of $26397 for Star Bulk (see Table 2). Additionally, using my estimated TCE per day and the data provided in Table 1, I estimate Q1 2022 revenue of $316.4 million and diluted EPS of $1.38 for Star Bulk.

Figure 2 – TCE per day of SBLK, GRIN and GOGL compared to the quarterly Baltic Dry Index

Figure 2 - TCE per day of SBLK, GRIN and GOGL compared to the quarterly Baltic Dry Index

Author (based on financial reports from SBLK, GRIN and GOGL and data from the Baltic Dry Index)

Table 2 – Estimated TCE of SBLK per day

Table 2 - Estimation of SBLK

Author’s calculations

Performance

In my previous article on SBLK, I realized that Star Bulk Carriers has a strong capital structure. Compared to my last stock surveys, currently SBLK’s total equity has increased significantly in 2021. After a steady trend of total equity of $1549 million in 2020, the company has significantly increased its total equity to $2,080 million in 2021, up 34%. Additionally, we observe that Star Bulk’s net debt decreased by approximately 22% to $1070.5 million in 2021 from its level of $1381.8 million at the end of 2020. Additionally, in the event of a business recovery post COVID-19, SBLK’s net debt is well below its net debt of $1,465.1 million at the end of 2019, just before the onset of the pandemic-induced challenges. Additionally, we see impressive growth in the company’s cash balance to $471.3 million in 2021 from its previous level of $183.2 million at the end of 2020. In short, the structure of the SBLK’s capital shows healthy cash flow and leverage (see Figure 3).

Figure 3 – Capital structure of SBLK

Figure 3 - SBLK

Author (based on data from Seeking Alpha)

Following SBLK’s strong cash balance and declining net debt in 2021, its leverage is expected to be in a good position. SBLK’s lower leverage resulted in net debt to EBITDA and net debt to operating cash flow ratios, which decreased to 2.93 and 3.20, respectively. Both of these amounts are well below the amount of 4.44 and 16.55, respectively, at the end of 2019 before the COVID-19 pandemic. Moreover, the comparison of SBLK’s debt ratios with some peers indicates that the company has a healthy and low debt condition (see Figure 4).

Figure 4 – SBLK’s leverage ratios compared to its peers

Figure 4 - SBLK

Author’s calculations

Additionally, Star Bulk’s strong capital structure, combined with its decreasing leverage, will drive further improvements in 2022. It supports their new higher dividend payout in the last quarter and means the company is able to allocate its free cash flow as a shareholder return.

Evaluation

In my previous article, I estimated that SBLK’s fair value is above its market price and that the stock has a potential value of $26 per share. The company’s strong performance over the past quarter has seen it beat $26 per share. In this article, I update and analyze the company’s new financial statements. Using comparable company analysis (CCA), Star Bulk shares are still attractive. Comparing the company with its closest dry bulk competitors, I estimate the fair value of the stock to be around $30. This method reflects real market data and is a suitable way to analyze Star Bulk due to the stability of the company.

Table 3 – Star Bulk’s financial data compared to its peers

Table 3 - Bulk star

Alpha Data Research

Looking at the background of SBLK’s valuation ratios and comparing them with other peers shows that SBLK is basically one of the best investments in the shipping industry. The company’s EV/EBIT amount is 5.33x, 19% lower than the 6.6x average of its peers. This is a sign of undervaluation and the fair value of the stock is higher than its market price. Moreover, SBLK’s EV/EBITDA and EV/sales are 4.48x and 2.78x respectively, which is in line with the peer average. In short, Star Bulk is relatively undervalued and has around 8% upside potential to reach $30 per share (see Chart 4).

Table 4 – Valuation of SBLK stocks

Table 4 - Valuation of SBLK stocks

Author’s calculations

Risks

With an average age of 9.7 years, Star Bulk has the largest dry bulk fleet among US and European listed companies with 128 owned vessels. The company uses its own fleet and does not benefit from such a high charter strategy as other companies like GOGL and GRIN. This means more expense of depreciation revenue and more expense of dry-docking revenue at a time when demand for dry bulk is low due to environmental regulations, wars, and economic recessions. Additionally, Star Bulk’s average fleet age increased from 8 in Q1 2019 to 9.9 in Q4 2021. Compared to GOGL fleet average age of six years and GRIN fleet average age of six years, the average age of the Star Bulk fleet is risky in the long run. This could become a problem for Star Bulk as environmental regulations have increased shipbuilding costs, according to Star Bulk’s Q4 2021 investor presentation. demand for dry bulk cargo could drop significantly if the war between Russia and Ukraine spreads to other parts of the world.

Summary

Using the CCA method and the latest quarterly data, I estimate that Star Bulk Carriers is worth $30 per share. Due to a healthy capital structure and a diversified owned fleet, I see promising revenue and earnings in the coming quarters for Star Balk. I estimate Q4 2021 revenue at $316.4 million and diluted EPS at $1.38 for Star Bulk. Additionally, I estimate 1Q 2022 TCE per day at $26,397, up from $15,461 in Q1 2021. In a nutshell, SBLK is a buy at prices below $30.