In our previous note dated May 29th, 2010 we had examined the cape size fleet of Diana Shipping (NYSE: DSX), a publicly traded bulk shipping company. We had focused on four of the company’s vessels that had options attached giving the charterers the right, but not the obligation, to extend the vessels’ employment for an additional year. The four options were set to expire in May, October & December 2010, and May 2011.
The May 2010 option was for MV SIDERIS GS, a cape size vessel built in 2006. The vessel is currently on the last year of a four-year time charter with BHP Billiton, a contract that on average generated gross daily revenue of approximately $41,000.
As we had forecasted, the charterers did not exercise their option to extend the charter for 11 to 13 months at $48,500. Instead they agreed to extend the vessel’s employment for 28 to 32 months at $30,500.
True, DSX secured employment for its vessel with a first class charterer for the next 2.5 years. But the new rate will reduce annual gross revenues by approximately $3,850,000, and will also reduce annual net income by about $0.05 per share. Which begs the dilemma: Earnings visibility yes, but at what price?
As we had forecasted, the charterers did not exercise their option to extend the charter for 11 to 13 months at $48,500. Instead they agreed to extend the vessel’s employment for 28 to 32 months at $30,500.
True, DSX secured employment for its vessel with a first class charterer for the next 2.5 years. But the new rate will reduce annual gross revenues by approximately $3,850,000, and will also reduce annual net income by about $0.05 per share. Which begs the dilemma: Earnings visibility yes, but at what price?
