August 6, 2023
I first wrote up the idea of GNK in June 2020 here: https://boolefund.com/genco-shipping-gnk/
At the time, the stock at $6.94 a share was very cheap based on our five measures of cheapness:
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- EV/EBITDA = 4.60
- P/E = 6.52
- P/B = 0.34
- P/CF = 2.07
- P/S = 0.70
Now the stock is up to $13.94, but the stock is still very cheap.
The market cap is $610.8 million. Cash is $47.9 million, while debt is $153.5 million.
The company has a barbell approach to fleet composition: The minor bulk fleet provides stable cash flows, while the Capesize vessels provide meaningful upside and operating leverage if rates move higher.
The company’s strategy is to have net debt of zero, to pay regular dividends, and to make acquisitions at low prices using its stock.
The company continues to voluntarily pay down debt. The company has reduced its debt by $295.7 million since the start of 2021, a 66% reduction in debt.
As a result, the company’s cash breakeven rate has been reduced from $13,050 to $9,715, the lowest in the drybulk industry. This compares well to the $12,300 Q3 2023 TCE estimate to date based on fixtures for 61% of the quarter’s available days.
Meanwhile, the company has paid 16 consecutive quarterly dividends totaling $4.60 per share, which is 33% of its current stock price of $3.94.
Here are the current multiples:
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- EV/EBITDA = 3.78
- P/E = 7.11
- P/B = 0.62
- P/CF = 4.73
- P/S = 1.34
Insiders own 1.3% of the shares outstanding, which is worth about $7.9 million (at today’s stock price of $13.94). Insiders will obviously do well if they successfully lead the company forward.
Genco Shipping has a Piotroski F_Score of 7, which is decent.
TL/TA is 15.6%, which is excellent. This is a function of the company’s ongoing strategy to reach net debt of zero.
ROE is 8.9%, which is low. This is because rates are fairly low. When rates improve, ROE will improve.
Intrinsic value scenarios:
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- Low case: GNK could fall 50%, from today’s $13.94 to $6.97, if there’s a bear market and/or a recession.
- Mid case: The company is worth an EV/EBITDA of at least 6. That would put fair value for the stock at $26.79, which is over 90% higher than today’s $13.94.
- High case: The company may be worth an EV/EBITDA of 8. That would put fair value for the stock at $33.51, which is 140% higher than today’s $13.94.
- Very high case: If rates improve significantly, EBITDA could increase at least 50%. If the company is worth an EV/EBITDA of at least 6, then the fair value for the stock would be $38.04, which is over 170% higher than today’s $13.94.
Risks
If there is a bear market and/or a recession, rates could collapse and the stock could drop 50% or more.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: https://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
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