Duke Investment Club

(NYSE: DSX)

By Rami Ali, Donna Budman, Sarah Dong, William

Rhem, Mark Soryano, Max Tabachnik, Rebecca
Versteeg, and Chris Whittaker

1
 Presentation Outline
• Thesis
• Company Overview
• Industry/Market Analysis
• Competitive Advantage
• Valuation
• SWOT Analysis
• Risks
• Conclusion
 Investment Thesis
• Recommendation: BUY
• Price Target: $18.16 (33% upside)
• Current Price: $13.60

• Shipping industry strength

• Growth from global economic recovery
and demand for dry commodities
• Competitive advantage within industry
• Strong client base, management, and
exposure to Australian businesses
• Valuation
• Undervalued based on growth estimates
and financial performance
 Company Overview
• Diana Shipping Inc. (NYSE:DSX) owns and Company Summary
operates 18 dry bulk shipping vessels with a
capacity of over 2 million deadweight tons Day's Range 13.13-13.35

• Founded in 1972 by Simeon Palios, a naval 52wk Range 10.75-17.9

architect and engineer Volume 472,713

• Charters vessels to companies for periods of Avg Vol (3m) 721,791

two to five years for fixed daily fee Market Cap 1.06B
• Diana's fleet is one of the newest in the world; P/E (ttm) 8.93
over nine years younger than the average EPS (ttm) 1.47
merchant fleet
Beta 1.68
• Diana Containerships Inc: $50 million
investment in company formed for investing in
containerships; representing approximately
55% of shares outstanding
 Company Overview

• Vessel details: VLOC (2 under construction), Capesize (7), Post-Panamax (1),

Panamax (14)
• Revenue Driver: Baltic Dry Index (BDI)- daily average of charter rates
• In-house technical and commercial management; efficient use of sister ships
• Dividends postponed in 2008 to invest in new ships at depressed prices
• Contributed to steep fall in stock price
• China to create five billion Euro fund for Greek shippers building ships in China
 Industry/Market Analysis
• Maritime Transportation crucial to BDI: 2010 YTD
movement of raw materials, accounting
for 5% of total world trade
• Steady growth in past months, outgrowing
S&P 500 (8.05% increase in past year)
• Greek ships account for 18.1% of global
market share for dry bulk (WSJ)
• Current trend in increasing demand for
raw materials
• Chinese demand for seaborne shipping of
dry commodities
• Baltic Dry Index (BDI) at historic lows
(dropped 90% from 2008 to 2009); high
upside potential with economic recovery
• Expansion: Diana Containerships
subsidiary to ship finished goods
 Competitive Advantage
• Modern, high quality fleet of dry bulk carriers
• reduces operating costs, improves safety
• Strong balance sheet, low debt
• Easy access to new ships and financing from large
global banks
• Experienced management team
• Led by Simeon Palios, a qualified naval
architect and engineer who has 42 year of
experience in the shipping industry.
• Strong relationship with largest mining and
agriculture clients
• Largest clients include BHP Billiton, Cargill,
Hanjin Shipping Co. (60% of revenues in
2009)
• A surge of Australian Wheat
• Ending March 31, wheat production will jump
to 25.1 million metric tons (16% rise from
2009-10 production, 36% jump from a five-
year annual average)
• 90% of wheat is exported, strong demand
 Valuation: Financials
DSX Comparables
Valuation Ratios
P/E (ttm) 9.48 18.84
5-year Growth 6.63% 4.45%
PEG (5 yr expected) 1.31 1.71
Price/Book 1.01 0.55
Financial Strength
Quick Ratio 8.03 1.82
Current Ratio 11.08 2.47
LT Debt/Equity 27.63 93.75
Total Debt/Equity 29.11 102.91
Operating Cash Flow 151.90 146.54
Profitibility
Profit Margin 48.00% 8.99%
EBITDA Margin 70.08% 55.43%
Operating Margin 49.02% 39.35%

Key Remarks:

•Cheaper value
•Strong asset base
•High Profitability
 Valuation: Comparables
Analysis
As of 11/15/2010 closing prices Market Capitalization ($mil) Enterprise Value / Consensus 5yr expected
Equity Enterprise EBITDA Multiples (x) P/E Multiples (x) growth P/E to growth: ROE
Comparable companies Price ($) MCAP Value TTM 2010E 2011E TTM 2011E estimate(%) "PEG" ratio TTM

Alexander & Baldwin, Inc. (ALEX) 36.12 1,490 1,980 10.27 9.38 8.57 20.00 17.45 9.50% 1.71 3.49%
DryShips, Inc. (DRYS) 5.39 1,590 4,160 7.94 7.53 7.13 37.96 5.44 5.50% 1.23 1.94%
Navios Maritime Partners LP (NMM) 18.87 936 1,160 12.48 12.01 11.51 13.66 15.10 4.33% 3.07 20.56%
Eagle Bulk Shipping, Inc. (EGLE) 5.61 349 1,350 12.28 12.06 11.85 19.08 18.1 1.77% 7.68 2.92%
Genco Shipping & Trading Ltd. (GNK) 16.49 561 2,010 6.42 6.19 5.95 3.82 5.89 4.00% 1.02 14.50%

Diana Shipping (DSX) 13.60 1,100 1,120 6.71 6.29 5.90 9.23 8.83 6.63% 1.33 11.65%

Peer Mean 16.50 985 2,132 9.88 9.43 9.00 18.90 12.40 5.02% 2.94 8.68%
Peer Median 16.49 936 1,980 10.27 9.38 8.57 19.08 15.10 4.33% 1.71 3.49%
*Source: Yahoo Finance

Implied P/E Multiples Consensus Growth Estimate (%) Price Target (1 yr) 18.16
4.63 5.63 6.63 7.63 8.63 Current Price 13.60
1.51 6.99 8.50 10.01 11.52 13.03 Annual Return 33.5%
Peer Median 1.61 7.45 9.06 10.67 12.28 13.89
Higher growth rate (6.63%)
PEG ratio 1.71 7.92 9.63 11.34 13.05 14.76
Lower Beta than peers (1.70)
1.81 8.38 10.19 12.00 13.81 15.62
Stronger Margins
1.91 8.84 10.75 12.66 14.57 16.48
SWOT Analysis
 Risks to Thesis
• Macroeconomic trends
• Continued slow economic recovery
• Oversaturation of shipping market
• Firms act more like price takers,
according to Baltic Dry Index
• High volatility in the BDI could lead
to unpredictability
• China: economic downturn and new
government regulations
• Less than anticipated demand for
commodities
• Continued dividend postponements
resulting in near-term stock weakness
 Conclusion
• Recommendation: BUY
• Price Target: $18.16 (33% upside)

• Current price does not fully account for

strong expected growth, high margins,
and ROE
• DSX has stronger client base in
Australia and Asia, can take advantage
of higher demand for commodities
• DSX also carries significant upside with
economic recovery and increase in
global trade
 Valuation Appendix: EPS
Sensitivity

2010E Implied Prices Peer Mean P/E Multiples

16.90 17.90 18.90 19.90 20.90
1.39 23.50 24.89 26.28 27.67 29.06
Consensus 1.49 25.19 26.68 28.17 29.66 31.15
EPS 1.59 26.88 28.47 30.06 31.65 33.24
1.69 28.57 30.26 31.95 33.64 35.33
1.79 30.26 32.05 33.84 35.63 37.42

2011E Implied Prices Peer Mean P/E Multiples

10.40 11.40 12.40 13.40 14.40
1.34 22.65 23.99 25.33 26.67 28.01
Consensus 1.44 24.34 25.78 27.22 28.66 30.10
EPS 1.54 26.03 27.57 29.11 30.65 32.19
1.64 27.72 29.36 31.00 32.64 34.28
1.74 29.41 31.15 32.89 34.63 36.37