This shipping company stock has tidied up its decks and could soon triple
BENJ GALLANDER, BEN STADELMANN, and PHILIP MACKELLAR
Sunday September 12, 2021
This is it people, one of the best times in history to be an investor. Stock markets don’t seem to care about debt, inflation, unemployment. Sure, there are down days that interrupt the uptrend, but that always happens. These are the good old days.
It is prudent to remember that during times like these, one must remain vigilant. Sir John Templeton stated, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” Bob Farrell, a Wall Street veteran, said, “There are no new eras — excesses are never permanent.”
On the other hand, Peter Lynch, the former manager of the Magellan Fund, warns about getting out of markets early. “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” Hmm . . .
One thing is certain, and it follows the thinking of writer Ron Chernow: “As a bull market continues, almost anything you buy goes up. It makes you feel that investing in stocks is a very easy and safe and that you’re a financial genius.”
Or perhaps more succinctly, as Humphrey Neill put it: “Don’t confuse brains with a bull market.” That does seem to be where we are now in many ways, and it harkens back to the tech bubble of the late 1990s. That is ancient history, no?
For contrarian value guys like us, picking downtrodden stocks is much more difficult at the moment. We desire at least a 100 percent return, and achieving that is less easy to do when so many stocks have gone up so much, including many on our stock watch list. But as always, there appear to be some values.
One thing we love to do when investing is to buy into beaten-up sectors (although that does not work when a field, like horses and buggies or console radios, is being rendered obsolete). One sector we’re watching that has floundered is shipping, where numerous enterprises have hit rocky shoals, while others have taken on much water as they fight to survive.
One that appears to have lots of potential, but still remains very risky, is Seanergy Maritime Holdings. This stock annihilated shareholders, if you care to glance at its chart, it appears to have traded at more than US$175,000 roughly 13 years ago.
That absurd figure is adjusted for stock consolidations, of which there have been four over the past decade, ranging from 1-to-5 to 1-to-16. Even after all that, the share count still crests 168 million. How badly beaten has this stock been? Benj picked it up at US$1.01 in July.
You read that correctly. He did not add it to the Contra the Heard President’s Portfolio because US stocks already register more than 70 percent of the dollar value there.
Shipping seems to be making a major turnaround. It has long suffered from weak demand and oversupply, but the trillions being spent on government stimulus, along with supply-chain disruptions, have caused daily leasing rates for ships to jump dramatically.
Accompanying this, boats are staying at sea longer as there are lineups to unload, and while they wait, the meter keeps ticking. Meanwhile, prices for SHIP’s bread and butter, bulk commodities such as iron ore and coal, have been doing exceedingly well, with the latter at the highest level in a decade.
The company’s recent financial results were excellent. Revenue in the most recent quarter was US$28.9 million, up from US$9.3 million a year ago. While increased daily rates were important, the fleet grow by five vessels, up from 11.
And the loss of US$11.3 million morphed into a profit of US$2 million. Pushing these numbers was the “time chart equivalent,” or TCE. This rate worked out to $20,000 a day, up from about $7,400 a year ago. In the next quarter, it is anticipated to be closer to $30,000 a day, but that is not guaranteed in these “funny” economic times.
Seanergy has also been refinancing debt. Although it has grown in the first six months of this year by $34.6 million, $69.7 million was paid. The increase was to acquire the new ships and, over all, the interest rate has been reduced.
A share repurchase program has recently been approved to the tune of US$17 million. With a book value of $1.08, it will be interesting to see how much the corporation is willing to pay on the buyback. Hopefully this will not be excessive.
Certainly, though, it adds a bit of insurance as if the share price drops below US$1 again for an extended period of time, delisting from the Nasdaq is a real possibility. That is something that insiders who own better than 7 percent of the shares would certainly not like to see.
Worth noting in this sector is that over the past number of years, there has been a bevy of mergers and takeovers. It would not surprise to see more happening in the next few years, and given this company’s moderate size, it could easily become a target.
When will the next stock market bruising occur? That is difficult to know especially with countries running the printing presses like there is no tomorrow. When it hits, Seanergy also will likely be side-swiped. But given how low the price appears and the way it has tidied up the decks, it does have a good chance to flourish. A triple in price from this angle is not out of the question.