DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ONTRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS.
U.S. Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should beaware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider thisreport as only a single factor in making their investment decision.29 October 2009Americas/United States
Equity Research
Marine
Genco Shipping and Trading
(GNK)
FORECAST INCREASE
Another Earnings Beat
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GNK reported Q3 EPS of $1.09 beating our estimate of $1.06 and aheadof consensus (First Call $1.02).
The earnings beat was driven primarily bycost savings in SG&A and lower than expect depreciation. The companyreported net voyage revenue of $91.9 million (CS $92.3 million) which wasdown 1% Q-Q and down 14% Y-Y. EBIT was $50.2 million versus ourestimate of $49.4 million and EBIT margin was 54% down from 57% in Q2.
■
Fleet Performance.
In Q3 the fleet earned a daily average rate of $30,743(CS $31,655). Operating days were also in-line at 2,976 (CS 3,001). Dailyvessel opex was $4,878 (~4% higher than we were modeling). Managementbudgeted $5,150 for daily vessel opex in Q3.
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Cash on Cash Return Hurdle Rate of 15%.
We expect GNK to exceed thishurdle rate should the Baltic Dry Trading Company (BDI) listing besuccessful. GNK plans to invest $75 million in the company and handle theday to day operations of the new company. After accounting for commercialand technical management fees and dividend payments we expect GNK’sreturn to be in the high teens (Panamax rates at $17,000). Should the BDIcompany be able to grow its fleet GNKs returns could be higher.
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Increasing 2009 EPS to $4.69 (previously $4.59) and increasing 2010EPS to $3.55 (previously $3.03).
The increase in EPS is driven by new andincreased charter rate estimates for the remainder of 2009 and 2010.
■
Outlook:
Continued optimism as the rest of the world gets back on its feet.Management noted a gradual shifting of Cape liftings away from China.Through the first 9 months of 2009, China took 80% of Cape liftings, whileQ4 has seen that number drop to ~70%. Management also noted thatchartering activity remains primarily in the spot market (not period charters).
Share price performance
61626Oct-08Jan-09Apr-09Jul-09
Daily Oct 29, 2008 - Oct 28, 2009, 10/29/08 = $15.08
PriceIndexed S&P 500
On 10/28/09 the S&P 500 index closed at 1042.63
Quarterly EPS Q1 Q2 Q3 Q4
2008A 1.65 1.95 1.85 1.552009E 1.32 1.20 1.09 1.082010E 0.80 0.79 0.80 1.16
Financial and valuation metrics
Year 12/08A12/09E 12/10E
EPS (CS adj., US$) 7.014.69 3.55Prev. EPS (US$) —4.59 3.03P/E (x) 2.84.2 5.5P/E rel. (%) 15.223.8 39.9Revenue (US$ m) 405.4379.0 362.2EBITDA (US$ m) 333.3296.8 270.9OCFPS (US$) 8.796.90 6.48P/OCF (x) 1.72.9 3.0EV/EBITDA (current) 5.05.9 5.7Net debt (US$ m) 1,0481,127 923ROIC (%) —— —
Number of shares (m) 31.52IC (12/08A, US$ m) —BV/share (12/08A, US$) —EV/IC (x) —Net debt (current, US$ m) 864.5Dividend (12/08A, US$) 2.85Net debt/tot. cap. (12/08A, %) —Dividend yield (%) 14.5
Source: Company data, Credit Suisse estimates.
Rating
NEUTRAL* [V]
Price (28 Oct 09, US$) 19.67Target price (US$) 25.00¹52-week price range 28.26 - 6.85Market cap. (US$ m) 619.95Enterprise value (US$ m) 1,668.30
*Stock ratings are relative to the relevant country benchmark.¹Target price is for 12 months.[V] = Stock considered volatile (see Disclosure Appendix).
Research AnalystsGregory Lewis, CFA
29 October 2009
Genco Shipping and Trading (GNK)
2
Income Statement
Exhibit 1:Income Statement
Income Statement($ mils, except per share data)Mar-08Jun-08Sep-08Dec-08Mar-09Jun-09Sep-09Dec-09Mar-10Jun-10Sep-10Dec-10200720082009e2010eRevenues91.7104.6107.6101.696.793.792.995.787.287.488.199.5185.4405.4379.0362.2
Operating ExpensesVoyage expenses(0.7)(0.7)(1.7)(1.9)(1.6)(1.3)(1.0)(1.4)(1.3)(1.3)(1.3)(1.5)(5.1)(5.1)(5.3)(5.4)Vessel operating expenses(10.9)(11.2)(11.5)(13.5)(14.2)(13.3)(14.8)(15.2)(15.5)(15.9)(16.3)(16.6)(27.6)(47.1)(57.5)(64.2)SG & A(4.4)(4.4)(4.1)(4.1)(3.9)(4.1)(3.8)(4.1)(4.3)(4.3)(4.3)(4.3)(12.6)(17.0)(15.9)(17.2)Management fees(0.7)(0.7)(0.7)(0.7)(0.9)(0.9)(0.9)(0.9)(1.1)(1.1)(1.1)(1.1)(1.7)(2.8)(3.5)(4.3)Total operating expenses(16.7)(17.0)(18.1)(20.2)(20.6)(19.5)(20.4)(21.7)(22.1)(22.6)(23.1)(23.5)(47.0)(72.1)(82.2)(91.3)
EBITDA74.987.689.581.476.174.272.574.065.164.865.076.0138.4333.3296.8270.9
Depreciation & amortization(15.9)(16.7)(18.8)(19.9)(20.9)(20.9)(22.3)(23.5)(23.8)(24.1)(24.4)(24.4)(34.4)(71.4)(87.7)(96.7)
Operating Income59.170.870.661.455.153.350.250.541.340.740.651.6104.0261.9209.1174.3
Interest Income0.60.40.60.10.00.00.10.40.70.91.11.23.51.80.64.0Interest Expense(11.8)(11.6)(12.0)(13.1)(13.9)(15.4)(16.0)(16.8)(16.8)(16.7)(16.5)(16.4)(26.5)(48.5)(62.1)(66.4)Other (0.1)(1.3)(0.6)0.00.0(0.3)(0.0)0.00.00.00.00.0(1.7)(2.0)(0.3)0.0
Pre Tax Income47.858.358.648.541.237.634.334.125.124.925.236.579.3213.2147.3111.8
Taxes0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.05.0
Net Income - cont ops47.858.358.648.541.237.634.334.125.124.925.236.579.3213.2147.3116.8
Extraordinary Items/Asset Sales26.22.64.4(159.8)--------27.5(126.5)--
Reported Net Income74.060.963.0(111.2)41.237.634.334.125.124.925.236.5106.886.6147.3111.8
EPS - cont ops1.651.951.851.551.321.201.091.080.800.790.801.162.967.014.693.55
Extraordinary Items/Asset Sales0.910.090.14(5.12)--------0.97(3.98)--
Reported EPS2.562.031.99(3.56)1.321.201.091.080.800.790.801.163.933.024.693.55Basic shares28.729.831.431.231.331.331.331.331.331.331.431.426.230.331.331.3Diluted shares28.930.031.631.231.431.431.531.531.531.531.531.626.330.431.431.5
Source: Company data, Credit Suisse estimates
29 October 2009
Genco Shipping and Trading (GNK)
3
Companies Mentioned
(Price as of 28 Oct 09)
Genco Shipping and Trading (GNK, $19.67, NEUTRAL [V], TP $25.00)
Disclosure Appendix
Important Global Disclosures
I, Gregory Lewis, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies andsecurities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed inthis report.
See the Companies Mentioned section for full company names.
3-Year Price, Target Price and Rating Change History Chart for GNK
GNK ClosingPriceTargetPrice Initiation/ Date (US$) (US$) Rating Assumption
1/7/08 46.68 70 O X5/13/08 81.99 80 N10/24/08 15.73 452/10/09 18.69 25
4525
7-Jan-08
8070ON
616263646566676
1 0 / 3 0 / 0 6 1 2 / 3 0 / 0 6 2 / 2 8 / 0 7 4 / 3 0 / 0 7 6 / 3 0 / 0 7 8 / 3 0 / 0 7 1 0 / 3 0 / 0 7 1 2 / 3 0 / 0 7 2 / 2 9 / 0 8 4 / 3 0 / 0 8 6 / 3 0 / 0 8 8 / 3 0 / 0 8 1 0 / 3 0 / 0 8 1 2 / 3 0 / 0 8 2 / 2 8 / 0 9 4 / 3 0 / 0 9 6 / 3 0 / 0 9 8 / 3 0 / 0 9
Closing PriceTarget PriceInitiation/AssumptionRatingUSDO=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered
The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's totalrevenues, a portion of which are generated by Credit Suisse's investment banking activities.
Analysts’ stock ratings are defined as follows:
Outperform (O):
The stock’s total return is expected to outperform the relevant benchmark* by at least 10-15% (or more, depending on perceivedrisk) over the next 12 months.
Neutral (N):
The stock’s total return is expected to be in line with the relevant benchmark* (range of ±10-15%) over the next 12 months.
Underperform (U):
The stock’s total return is expected to underperform the relevant benchmark* by 10-15% or more over the next 12 months.
*Relevant benchmark by region: As of 29
th
May 2009, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe**,with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities.Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock’s total return relative to the analyst's coverage universe**. For Australian and New Zealand stocks a 22% and a 12% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively, subject to analysts’ perceived risk. The 22% and 12% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively, subject to analysts’ perceived risk.**An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector.
Restricted (R):
In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain othercircumstances.
Volatility Indicator [V]:
A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24months or the analyst expects significant volatility going forward.
Analysts’ coverage universe weightings are distinct from analysts’ stock ratings and are based on the expectedperformance of an analyst’s coverage universe* versus the relevant broad market benchmark**:
Overweight:
Industry expected to outperform the relevant broad market benchmark over the next 12 months.
Market Weight:
Industry expected to perform in-line with the relevant broad market benchmark over the next 12 months.
Underweight:
Industry expected to underperform the relevant broad market benchmark over the next 12 months.
*An analyst’s coverage universe consists of all companies covered by the analyst within the relevant sector.**The broad market benchmark is based on the expected return of the local market index (e.g., the S&P 500 in the U.S.) over the next 12 months.
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29 October 2009 Americas/United States Equity Research Marine
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