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Belships: Next Year Covered By Solid Contracts, But We Are Concerned Of The Market’s Future

The cycle is turning in the drybulk shipping market. Thus, even very solid 3Q22 results from Belships posted last Thursday matter less than the outlook. Although there is no drama there at least for 4Q22 and 2023, which are significantly covered by contracts, but there is a huge uncertainty in the market with all signs pointing to the beginning of a struggle. All eyes are on China and Ukraine, but we now find the stock fairly valued and downgrade our recommendation to Hold.

Solid figures reported

Belships reported very solid figures with adj. EBITDA and adj. EBIT around 15% above our estimates with the strength coming from the Shipping segment. Better results were driven by an increase in vessel days, while the operating expenses decreased YoY due to less Covid-19 related crewing expenses and vessel takeover costs. Lighthouse Navigation is more volatile, but still delivered another strong quarter with an EBITDA of USD 10.1m. The Board declared a dividend payment of USD 18.4m (NOK 0.75 per share).

Strong contract coverage for 4Q22 and 2023

A few more time charter contracts have been entered into during the quarter increasing contract coverage for 2023 to 50% (90% for 4Q22) at around USD 21,900/d level (USD 22,900/d for 4Q22). Estimated cash breakeven for 2023 is USD 10,900 per vessel per day and the cash breakeven for the remaining open days in 2023 is below zero.

Supply/demand prognosis

Regarding the market, the short-term prognosis is for the rates to weaken. Port congestions reversed and are close to pre-Covid normalized levels, adding the pressure to shipping rates. China’s economy is slowing down and as a result, the IMF cut the country’s projected GDP growth forecast to 3.2% in 2022 and 2.7% in 2023. We should also keep in mind that the zero-Covid policy was not altered, and continuous uncertainty remains. The war in Ukraine exposed the shortages of energy and commodities and looks far from over as well. On the vessel supply side, the orderbook for Supramaxes and Ultramaxes is at historically low levels (7% of the existing fleet), lower even than the 20+ year vessels approaching recycling.

Downgrade to Hold on all the uncertainty

Belships has done a great job signing the contracts at the higher levels of the rate curve. Still, all is about the future, which, for the drybulk market overall looks somewhat uncertain. Therefore, we suggest taking profit and downgrade our recommendation to Hold for the stock.

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Source: Norne Research

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