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.10 November 2009Americas/United States
Equity Research
Marine
Diana Shipping
(DSX)
FORECAST INCREASE
Remaining Patient, But Ready to Buy
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Overall DSX reported a solid quarter slightly better than consensus.
DSX reported Q3 EPS of $0.36 ahead of our estimate of $0.34 (First Call$0.34). The earnings beat was driven by better than expected revenue. Netrevenue was $55.4 million (CS $53.8 million) which was down 2% Q-Q anddown 34% Y-Y. The fleet had 1,708 operating days (CS 1,710) for a fleetutilization (owned/operating) of 97.7%. Daily operating expense was $5,898down 1% from last quarter and 2% above the trailing 12 month average.
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Fleet Update:
We estimate 2010 contract coverage at ~70%. DSX has 6Panamaxes rolling off charter in 1H10 and 4 additional Panamaxes in 2H10.We expect management to use a combination of short and long termcharters in employing these vessels. The company took delivery of a Capenewbuilding in October and expects to take delivery of its final newbuilding(21
st
vessel) in early 2010.
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Strong balance sheet should lead to fleet growth over the next year.
DSX has $252 million in cash and roughly $85 million in undrawn debt. Proforma for its 2 newbuilding Capes (1 already delivered) we expect DSX tohave $280 million in cash and undrawn debt for vessel acquisitions. DSXalso has 8 debt free vessels that we expect to be levered up over the nexttwo years – this has the potential to double the company’s dry powder forfleet growth. Management has remained patient but noted that theiracquisition plan (may last two years) could commence by the end of the year.
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Increasing Earnings.
Increasing 2009 EPS estimate to $1.59 (previously$1.54) and increasing our 2010 EPS estimate to $1.49 (previously $1.44).The earnings increases were driven by the updated fleet employment profileand timing of newbuilding deliveries.
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Continued Next Page
Share price performance
71217Nov-08Feb-09May-09Aug-09
Daily Nov 10, 2008 - Nov 09, 2009, 11/10/08 = $14.38
PriceIndexed S&P 500
On 11/09/09 the S&P 500 index closed at 1093.08
Quarterly EPS Q1 Q2 Q3 Q4
2008A 0.71 0.76 0.77 0.732009E 0.46 0.39 0.36 0.372010E 0.33 0.38 0.38 0.39
Financial and valuation metrics
Year 12/08A12/09E 12/10E
EPS (CS adj., US$) 2.981.59 1.49Prev. EPS (US$) —1.54 1.44P/E (x) 4.88.9 9.5P/E rel. (%) 24.548.4 65.4Revenue (US$ m) 337.4241.5 252.8EBITDA (US$ m) 268.7171.1 173.0OCFPS (US$) 3.511.28 —P/OCF (x) 3.611.0 —EV/EBITDA (current) 5.56.7 5.5Net debt (US$ m) 176-1 -153ROIC (%) —— —
Number of shares (m) 80.40IC (12/08A, US$ m) —BV/share (current, US$) 12.6EV/IC (x) —Net debt (12/08A, US$ m) 176.1Dividend (current, US$) 2.19Net debt/tot. cap. (current, %) 29.0Dividend yield (%) 15.5
Source: Company data, Credit Suisse estimates.
Rating
OUTPERFORM* [V]
Price (09 Nov 09, US$) 14.16Target price (US$) 20.00¹52-week price range 18.52 - 7.24Market cap. (US$ m) 1,138.46Enterprise value (US$ m) 1,490.59
*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
10 November 2009
Diana Shipping (DSX)
2
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Valuation:
Our 2010 EBTIDA estimate of $173.0 million is a 6.0x 2010 EV/EBITDA.Our $20 target price is a 8.5x 2010 EV/EBITDA. Our 2010 free cash flow estimate of$170 million represents a free cash flow yield of 15%. However, we expect upsidesurprise to both our 2010 EBITDA and free cash flow estimates as DSX acquiresvessels over the next year.
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Outlook:
Management highlighted improving demand fundamentals for the seabornedry bulk commodity trade. Improvements in the iron ore, thermal coal, and coking coalseaborne trades combined with a high level of newbuilding delivery delays has resultedin better than expected dry bulk rates over the last few months. However, managementnoted that while demand fundamentals should improve as the global recoverycontinues their biggest concern is the magnitude of the existing orderbook. Vesseldelays have been a key theme in 2009, but not newbuilding cancellations.Management also pointed out that the Cape orderbook represents ~90% fleet growthand the Panamaxes orderbook represents ~50% fleet growth. Management targetedthe Handysize orderbook as the primary area of potential vessel cancellations. Evenstill management noted that it continues to aggressively look at newbuildings andhighlighted newbuilding Capesize values on the call. Management also noted thatsecond hand tonnage does not look as attractive as newbuildings at this point – but didnot rule out future acquisitions of second hand tonnage.
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Acquisitions on the horizon:
We expect DSX to begin acquiring vessels over thenext few months – most likely either newbuilding Capes or Panamaxes with 2010delivery dates. As we move into the middle of next year we expect fleet growth to bedriven by a combination of newbuildings and second hand tonnage.
Income Statement
Exhibit 1:Income Statement
Income Statement
($ mils, except per share data)
Mar-08Jun-08Sep-08Dec-08Mar-09Jun-09Sep-09Dec-09Mar-10Jun-10Sep-10Dec-10200720082009e2010e
Voyage Revenue78.986.887.484.362.759.858.260.857.564.365.166.0190.5337.4241.5252.8Voyage Expenses(2.6)(4.0)(3.5)(4.8)(3.2)(3.1)(2.8)(3.0)(2.8)(3.2)(3.2)(3.2)(8.7)(15.0)(12.1)(12.4)
Net Voyage Revenue76.382.783.979.559.556.755.457.854.661.161.962.7181.8322.4229.4240.4
Vessel Operating Expenses(9.2)(9.9)(10.9)(9.9)(9.4)(10.3)(10.3)(10.9)(10.8)(11.6)(11.8)(11.9)(29.3)(39.9)(41.0)(46.0)Management Fees0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0SG&A(3.6)(3.9)(3.3)(3.1)(4.1)(4.2)(4.4)(4.7)(4.8)(5.3)(5.5)(5.7)(11.7)(13.8)(17.4)(21.4)Other0.00.00.00.00.00.00.00.00.00.00.00.00.10.00.00.0
EBITDA63.569.069.766.546.042.240.742.239.044.344.645.1140.9268.7171.1173.0
Depreciation(10.3)(11.0)(11.0)(11.0)(10.8)(11.0)(11.2)(12.2)(11.9)(12.7)(12.8)(12.8)(24.4)(43.3)(45.2)(50.3)
Operating Income53.258.058.755.535.131.229.530.027.131.631.732.3116.4225.4125.9122.7
Interest Expense(1.5)(1.5)(1.4)(1.5)(0.8)(0.9)(0.7)(0.9)(1.2)(1.4)(1.8)(2.0)(6.4)(5.9)(3.4)(6.4)Interest Income0.60.10.10.10.30.20.30.60.60.70.81.02.70.81.33.2Other0.90.10.20.00.00.00.00.00.00.00.00.0(0.0)1.30.00.0Pretax Income53.256.757.654.134.630.529.129.726.530.930.831.2112.7221.6123.8119.5Taxes0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
Net Income - continuing ops53.256.757.654.134.630.529.129.726.530.930.831.2112.7221.6123.8119.5
Extraordinary Items0.10.2(0.1)(0.4)21.5Net Income - reported53.256.757.654.234.830.428.729.726.530.930.831.2134.2221.7123.6119.5
Diluted EPS - cont. ops$0.71$0.76$0.77$0.73$0.46$0.39$0.36$0.37$0.33$0.38$0.38$0.39$1.75$2.98$1.59$1.49
Extraordinary charges$0.00($0.00)($0.01)$0.34Diluted EPS - reported$0.71$0.76$0.77$0.73$0.47$0.39$0.36$0.37$0.33$0.38$0.38$0.39$2.09$2.98$1.58$1.49
Dividend per share$0.85$0.91$0.95$0.00$0.00$0.00$0.00$0.00$0.00$0.00$0.00$0.00$2.19$2.72$0.00$0.00
Basic shares74.474.474.474.474.477.780.380.380.380.380.380.363.774.478.280.3Diluted Shares74.474.474.474.474.477.880.480.480.480.480.480.463.774.478.380.4
Source: Company data, Credit Suisse estimates
10 November 2009
Diana Shipping (DSX)
3
Companies Mentioned
(Price as of 09 Nov 09)
Diana Shipping (DSX, $14.16, OUTPERFORM [V], TP $20.00)
Disclosure Appendix
Important Global Disclosures
I, Gregory Lewis, CFA, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies andsecurities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed inthis report.
See the Companies Mentioned section for full company names.
3-Year Price, Target Price and Rating Change History Chart for DSX
DSX ClosingPriceTargetPrice Initiation/ Date (US$) (US$) Rating Assumption
7/17/07 26.55 27 O X8/3/07 26.16 309/12/07 25.35 R10/9/07 32.81 34 O11/15/07 30.73 3910/24/08 14.8 2811/12/08 11 20
30392820
17-Jul-07
3427ORO
712172227323742
1 1 / 1 1 / 0 6 1 / 1 1 / 0 7 3 / 1 1 / 0 7 5 / 1 1 / 0 7 7 / 1 1 / 0 7 9 / 1 1 / 0 7 1 1 / 1 1 / 0 7 1 / 1 1 / 0 8 3 / 1 1 / 0 8 5 / 1 1 / 0 8 7 / 1 1 / 0 8 9 / 1 1 / 0 8 1 1 / 1 1 / 0 8 1 / 1 1 / 0 9 3 / 1 1 / 0 9 5 / 1 1 / 0 9 7 / 1 1 / 0 9 9 / 1 1 / 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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