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OceanFreight: Why It's Now a Must Buy 2 comments
by: Jeremy Richards November 30, 2009 | about: DRYS / FREE / GNK / OCNF / PRGN / TBSI
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OceanFreight, Inc (OCNF) is an owner and operator of both drybulk and tanker vessels that operate worldwide. OCNF owns a fleet of 12 vessels, comprised of 8 drybulk vessels (2 Capesize, 6 Panamaxes) and 4 crude carrier tankers (1 Suezmax, 3 Aframaxes) with a combined dead weight tonnage of about 1.22 million tons.
The company has agreed to acquire two Capesize dry bulk vessels and upon the delivery of these vessels to OCNF its fleet will consist of 14 vessels, comprised of 10 dry bulk carriers (4 Capesizes, 6 Panamaxes) and 4 tankers (1 Suezmax, 3 Aframaxes) with a combined deadweight tonnage of approximately 1.6 million tons.
Reasons to own OCNF:
1. OCNF had recent earnings of $0.11 per share excluding the one off charges due to the sale of an older panamax vessel. Company's net income on an operating basis was well above analyst expectations of $0.00 per share.
2. OCNF has secured gross revenues of $115 million until the end of 2010 with 92% fleet charter coverage for the remainder of 2009 and 72% for 2010.
3. OCNF has a very low price to earnings ratio of 1.20 based on a average of 3 fiscal years.
4. OCNF has a book value of $3.45 a share, and is trading at only 0.3x book at $1.07.
5. OCNF is currently trading at only 0.7 x sales.
I believe OCNF is now a must buy given the current stock price of $1.07 which doesn't reflect the $115 million revenue that is already secured for 2010. OCNF has excellent growth prospects that could very well generate massive upside in the stock price (i.e. 300% to 500% over the next 12 to 18 months). OCNF had a high of $5.50 a share at the start of 2009 and sold off part due to dilution along with the downturn in the dry bulk shipping sector; the shares outstanding are now 142M from 90M. In my opinion within the dry bulk shipping sector, OCNF offers by far the greatest upside percentage reward. OCNF is easily 100% undervalued. Watch for OCNF to rally back above its 200 day moving average of $1.37 over the next 30 days.
OCNF is positioned to take advantage of opportunities in the seaborne transportation markets for both drybulk and energy commodities. The Dry bulk business has clearly bottomed and now starting to pick up again. The chairman and managing director of Shipping Corp. of India S. Hajara said in an interview with The Economic Times that the worst for drybulk shipping industry is over.
The share prices of most dry bulk shipping companies follow the rise and fall in the Baltic Dry Index or BDI. This is an index covering dry bulk shipping. Several of my broker friends that trade this index believe buying a shipping stock below asset value is a sure thing. Several years ago, many shipping stock traded 4 to 5 times asset value.
I have had OCNF on my radar since 2007 when it peaked at $30 share. After 6 months of being on my buy watch list, I am buying. The downside risk is very low with excellent upside reward. I expect OCNF to be above $3 a share by this time next year. Analysts will likely upgrade OCNF soon.
Disclosure: Buying OCNF.
vr gr willem.