The Best of Bulk Worlds
By Toby Shute May 20, 2008
Now that Excel Maritime (NYSE: EXM) has merged with Quintana, the firm offers a blended approach to the dry bulk market. At first I was skeptical of the perceived benefits to Quintana shareholders, since Excel had deliberately sidestepped the spot market and toed the time-charter line. But with today's astronomical shipping rates, I imagine these shareholders have learned how to stop worrying and love the volatility.
It's not as though Excel is taking on a crazy amount of risk. Rates are about 75% fixed in the back half of 2008, and contracted revenue roughly covers fixed expenses through 2010. In addition to a fairly aggressive post-merger debt paydown, Excel ought to throw off enough free cash flow to implement a robust dividend policy.
The pre-merger first-quarter results demonstrate just how lucrative it can be to ride the spot-market wave. Revenue roared 94% higher, and EBITDA margins were a monster 74% (up from 63% in Q1 of 2007). Earnings more than tripled.
Because it's hard to say how long the good times will last, Excel is sensibly fixing various vessels on very attractive long-term charters, such as a recent deal with Arcelor Mittal (NYSE: MT). The time-charter market is so strong now that even DryShips (Nasdaq: DRYS) has recently fixed 14 of its vessels. I would expect Excel to seek further long-term commitments with other "blue chip" customers like BHP Billiton (NYSE: BHP) and Bunge (NYSE: BG).
One interesting item in the conference call was that a new Korean shipyard, contracted to build several Capesize vessels for Excel, is facing some credit issues. Excel reports that this is a growing trend across emerging, "greenfield" shipyards throughout Asia. Excel's deliveries will be delayed by at least a year, or they may never get delivered at all. While this cramps future cash flow, the company hasn't made a down payment, and widespread delays would be very bullish for the dry bulk market, which faces a sizeable newbuild order book over the next few years.
