I have spent a long time looking at this company as well as many other water transport corporations. GNK is a good value with a PEG of 0.294. It is a well run company. It is profitable and should increase earnings 4th quarter 08 on out (flat until then). However it is not the sure fire slam dunk you think it will be. The value of the dollar, the state of the world economy, and a potential glut of new dry bulk carriers presently under construction may send the entire industry south. So here a very cautious 2 thumbs up.

Do have an immediate ????? with the timing of you shares purchase. The average Base-to-Peak up cycle for GNK is 57.3%, lasting 11 days.

The average Peak-to-Base down cycle is 26.4%, lasting 18 days.

It is now 16.1% down from peak of 84.00.

GNK is 8 day(s) into its average peak-to-base 18 day cycle.

Probability is that GNK has -10.34% (-7.29) left in its downward move. Too early a purchase????

PHP

Pablo,

Those are some good numbers, too bad you didn't drop those on me before I bought today :)

I'm in on this for the longer haul, so I think I'm ok. I mean I rode this puppy from 60 to 35 last year and enjoyed the ride back up.

Regarding the gluttany of ships expected to hit the maket in the next year or two, I have three points:

1). Genco signs long term charters, so it has locked in rates for multiple years. Unless it's clients break contract - it don't matter what happens to the spot rate for Genco. 1,000 ships could enter the waters tomorrow, but Genco has contracts on its boats extending as long as 2012.

2). Worldwide demand is not going to go down. Supply might increase as boats hit water, but we are not going to see some event where all of a sudden China and India decide to no longer consume iron ore, fertilizers, copper, etc.

3). This is related to point 1 actually. If Genco's current fleet, they have 4 charters expriing this year. That means those 4 ships will likely be tied up in contract thru 2011. They have 10 ships expiring in 2009. Assuming the market is not saturated with boats until 2010 (when analysts expect), Genco can get 14 of its 29 or so ships on charter thru 2011. Further they have four NEW ships coming online this year and three next year. So we're looking at a situation where Genco could have 21 ships chartered into 2011-2012.

I'm looking at this as a 12 - 18 month play - by the time supply hits the waters and the longer term contract rates might affect Genco, I should be out.

Good points, guys... I'm now going to keep my eye on this one, especially after I've seen DRYS rebound from their recent slump.



I like GNK because it's margins have been consistently improving (unlike DRYS) and offers a very nice 5.7% dividend yield. Also, Pablo, the weakness in the dollar will only help GNK as their services become cheaper for foreign customers.



My only concern is that the entire dry shipping industry has been a hot ticket recently, though the recent pullback makes it more attractive.

wianek,

Dont' track this too closely with DRYS. Dryships is almost 100% spot rate, which means they get daily rates, not contract rates. If the Baltic index goes up 20%, then they will immediately make 20% more revenue. But the downside applies as well.

From a strict fundamental side, if you look at the rates they get now for charters - and look at the rates they are signing deals at - and (this is the key leap of faith) you assume that the bulk market does not decline > 30% in the next 1.5 years - GNK has locked up earning that should easily justify a value in the mid 100's just on PE alone.

The Capesize deal they signed yesterday - thru 2011 - is for $65,000 day. The current capesize deals they have expiring next year are at an average of $47,000 or so per day.

Gotcha, thanks for clearing that up - I just started looking at this industry and was not aware of the discrepencies in contracts between companies. I would hope that GNK makes a push and tries to lock up contracts at current rates - that should secure growth and steady margins going forward.

check this out:

http://phx.corporate-ir.net/phoenix.zhtml?c=190282&p=irol-IRnewsArticle&ID=1151910&highlight=

You can see their fleet, contract, and contract expiry dates here. They will renew the contracts as they get close to expiring. You can see there are some expiring in June or July of 08 they already signed new deals for last week.

Demand is expected to remain high in 08 for SURE, and more than likely through 09. GNK should have over half of it's fleet resigned in 09 thru 2011/2012 which means we'd have some pretty darn stable and forcastable revenues for a few years.

Do you know if there is anyway to look at these rates based on capacity of the vessels - some sort of per ton rate?



It worries me that 13 vessels with contracts expiring May 09 or later have rates below $40k per day, with quite a few below $30k - but then again these could just be smaller capacity vessels. Any idea what the rates would be on these of contracts were renegotiated at current rates?



If you are really serious about this Company, you can try modelling out their revenues for 08 and 09 under different assumptions - this should be fairly easy to do since they give you the daily cash rates for particular ships and when the contracts are up. But then again, I've found that sometimes you can almost overthink certain positions.

Absolutely - I dont have the info in front of me, I'm at work right now but I'll give you this pointer really quick:

The ships are listed in order by size - largest to smallest. The capesize are the largest bulk vessels out there.

You can use this to cross reference - its a listing of genco's fleet and DWT (dry weight tonnage) capacity:

http://gencoshipping.com/fleet1.html

Then you can check the Baltic Index:
http://www.dryships.com/index.cfm?get=report

to get an idea for the current rates and trends. Since Genco locks up 2 to 3 year contracts they will obviously never get the daily rate. It will be a nice spot where they are hedged against downside, but give up the potential upside.

i.e right now the Capesize daily rate is just above $200,000 - and Genco signed that deal this week thru 2011 at $65,000 / day. Dryships will reap the $200,000 / day price, but will have basically one way contracts (port to port). DRYS is the homerun play, this is more like a stand up double.

Regarding the question about what rates might be on a smaller ship now, they just inked a deal with ArcelorMittal thru August 2011 at $55,250. This is for a Panamax which have the following current charter rates:

Ship / Expires / Rate
Genco Beauty / May 2009 / 31,500 -
Genco Knight / May 2009 / 37,700 -
Genco Leader / December 2008 / 25,650(7) -
Genco Vigour / March 2009 / 29000
Genco Surprise / December 2010 / 42,100

So you can see - at todays rates we're looking to jump from about 30,000 avg to 55,000.

Which in hindsight now makes me ask - either the Capesize deal they just did was crazy low (65,000) or this ArcellorMittal deal is crazy high (55,000) considering the difference in sizes in boats.

Don't see how you can calculate potential profit given that drybulk charter contracts are often written with profit sharing provisions. At best you can get a gross number to work from. Then again I have no idea what it costs to operate a vessel so how do I calculate net???.



I have a more fundamental problem. Read an article that says that U.S. companies are having trouble shipping as container space is hard to come by. Any profit advantage gained by increased orders are eroded by high shipping costs.

When I check the intermodal rail traffic (think containers going to and coming from ports) the rail traffic is down 3.2% over last year. So what gives???? http://railfax.transmatch.com/

Pablo

First of all, dry bulk is NOT container shipping. Almost nil dry bulk comes into USA. Dry bulk is all going to india and china. So a better indicator would be to check Chinese ports to see whats incoming.

In china alone, besides their normal huge appetite for iron ore, fertlizers, gains, and other bulk goods, do a quick search on China's coal reserves. China's running low on coal reserves which fuels many of its energy plants so coal demand has also spiked. Then think of the copper and steel needed to rebuild an entire province in China almost! Regardless these are short term issues which do not impact Genco as much. Overall China's eating up raw materials to grow.

Regarding the cost to operate a ship, sit down before you read this excerpt from their last Qtr Earnings Release. Also note when reading this that the average revenue per charter per day is $35,891 (per the save Earnings Release)

...
Daily vessel operating expenses grew to $4,278 per vessel per day during the first quarter of 2008 from $3,627 for the same quarter last year as a result of higher crew and lube expenses as well as the operation of five Capesize vessels. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers and management's expectations, we expect our 2008 DVOE budget to be $4,700 per vessel per day. As previously announced the increased budget reflects the anticipated increased cost for crewing and lubes as well as the operation of our Capesize vessels.

http://phx.corporate-ir.net/phoenix.zhtml?c=190282&p=irol-IRnewsArticle&ID=1137709&highlight=

And as for profit sharing, they are all disclosed. Usually been 5% profit sharing - so all of the numbers are as transparent as transparent can be in my opinion when it comes to a publicly traded stock!

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You did a lot of homework, but you miss so many important points.

Like - all that data you grabbed from the USDA is great, but if you check with Genco's contracts, they simply don't export things from the USA. Almost none of the dry bulk shippers do. You got to think beyond the USA.

Also, what DO I CARE if they have to load iron ore onto the backs of guinea pigs to put it onto the ship? The point is - they make $30,000+ per day operating a ship and it costs them $4,700 to operate it. There is no magic here. They aren't saying "it costs $4,700 a day to operate, except days when the guinea pigs have to load ore, then it's $100,000 a day".

Regarding your point of having no load to pick up when they get into port. WHO CARES? They are CONTRACTED to receive $x EVERY DAY. That's like saying if I paid you $1,000 to drop off a package for me and it takes you 1 day to do it, it's a raw deal for you cause you have nothing to pick up when ou are there. Genco is not a shipper for hire, they are Cargill's bitch. Cargill and the rest of the companies that contract them pay them a flat daily rate locked into a yearly term to do nothing but ship they goods and their goods only.

I agree with your wildcard. That's the risk of doing business in any industry. If there's a global recession, marine transportation isn't the only industry that's gonna sink. Go buy TIPS if this is a legitimate fear of yours.

I too tend to lean with Buffet, but I dont know how much more transparency you need. How many other companies in high growth areas, paying big dividends can tell you - beyond a guesstimate - their revenue for the next fiscal year with about 80% certainty. Any other company can do it wiht a hope that all their execution goes right and market trends continue. Genco and other shippers with long term contracts can do it knowing they will get the money thats on the table as long as say Cargill Intl. does not go BK between now and then.

And, I also agree with FRO. My next batch of funds has FRO earmarked for now. Just not sure if I want to overexpose myself to marine transportation.

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Genco is a fundamentally sound investment. Normally Genco should have just turned into an upcycle. Right now it will continue to head south having run into the perfect storm. (Selloff in transports, poor economic conditions, uncertain world economy, volatile stock market.) I wish I had a crystal ball to know where the bottom will be but I don't. Oh well....hold my nose and take the dividend.

Are you in GNK pablo? I've gotten destroyed by it lately, but if I had more money - I'd buy more. Yesterday's selloff on the shippers, largely due 2 back to back "largest drop in the Baltic Rate in history" days, I think makes a good buying opp... For companies like DRYS, I see why a daily rate drop would kill the company, but GNK should have been less subject to it than it was (relative to say DRYS).

There's been a spattering of analysts with their opinions good and bad on the coming months for China's expected consumption etc... I think GNK and perhaps the industry as a whole just needs a little positive catalyst. Earnings season is about 1.5 months out - I think it runs around then.. so the buying time is soon. Last earnings seasons - all of the shippers did well and the industry as a whole ran...

good luck!

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Ya, it was getting kinda oversold, and man I had a buy order in the low 50s ready, but yanked my sell on apple cause it tanked cause of those stupid Jobs is frail rumors....

I think news trumps technicals - and the news and upgrade in the last 24 hours popped GNK just now... but I'm not sold (yet) on this being an upward stock until we get into earnings season. I'll be happy if it can hold in the 60 -70 range until earnings. That's when I think we'll get the next sustained leg up movement...

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I own @ 200 shares.

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There is hope. My gains/losses just went into the black.

A prior post question??? How can you say Genco doesn't export outside the U.S. when they charter to foreign companies? Some ships are time charted to a S. Korean company. Can't believe that they are shipping grain to anyplace other then S.Korea or far east.



PHP