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8/7/2019 Diana Pitch
1/13
1
Duke Investment Club
(NYSE: DSX)
By Rami Ali, Donna Budman, Sarah Dong, WilliamRhem, Mark Soryano, Max Tabachnik, Rebecca
Versteeg, and Chris Whittaker
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Presentation Outline
Thesis
Company Overview
I
ndustry/Market Analysis Competitive Advantage
Valuation
SWOT Analysis
Risks
Conclusion
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Investment Thesis
Recommendation: BUY
Price Target: $18.16 (33% upside) Current Price: $13.60
Shipping industry strength Growth from global economic recovery
and demand for dry commodities
Competitive advantage within industry Strong client base, management, and
exposure to Australian businesses Valuation
Undervalued based on growth estimatesand financial performance
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Company Overview
Company Summary
Day's Range 13.13-13.35
52wk Range 10.75-17.9
Volume 472,713
Avg Vol (3m) 721,791
Market Cap 1.06B
P/E (ttm) 8.93
EPS (ttm) 1.47
Beta 1.68
Diana Shipping Inc. (NYSE:DSX) owns andoperates 18 dry bulk shipping vessels with acapacity of over 2 million deadweight tons
Founded in 1972 by Simeon Palios, a navalarchitect and engineer
Charters vessels to companies for periods oftwo to five years for fixed daily fee
Diana's fleet is one of the newest in the world;over nine years younger than the averagemerchant fleet
Diana Containerships Inc: $50 million
investment in company formed for investing incontainerships; representing approximately55% of shares outstanding
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Company Overview
Vessel details: VLOC (2 under construction), Capesize (7), Post-Panamax (1),Panamax (14)
Revenue Driver: Baltic Dry Index (BDI)- daily average of charter rates
In-house technical and commercial management; efficient use of sister ships Dividends postponed in 2008 to invest in new ships at depressed prices
Contributed to steep fall in stock price China to create five billion Euro fund forGreek shippers building ships in China
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Industry/Market Analysis
Maritime Transportation crucial tomovement of raw materials, accountingfor 5% of total world trade
Steady growth in past months, outgrowingS&P 500 (8.05% increase in past year)
Greek ships account for 18.1% of globalmarket share for dry bulk (WSJ)
Current trend in increasing demand forraw materials
Chinese demand for seaborne shipping ofdry commodities
Baltic Dry Index (BDI) at historic lows(dropped 90% from 2008 to 2009); high
upside potential with economic recovery Expansion: Diana Containerships
subsidiary to ship finished goods
BDI: 2010 YTD
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Competitive Advantage
Modern, high quality fleet of dry bulk carriers reduces operating costs, improves safety
Strong balance sheet, low debt Easy access to new ships and financing from large
global banks
Experienced management team
Led by Simeon Palios, a qualified navalarchitect and engineer who has 42 year ofexperience in the shipping industry.
Strong relationship with largest mining andagriculture clients
Largest clients include BHP Billiton, Cargill,Hanjin Shipping Co. (60% of revenues in2009)
A surge of Australian Wheat Ending March 31, wheat production will jump
to 25.1 million metric tons (16% rise from2009-10 production, 36% jump from a five-year annual average)
90% of wheat is exported, strong demand
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Valuation: Comparables Analysis
Implied P/E Multiples Consensus Growth Estimate (%)
4.63 5.63 6.63 7.63 8.631.51 6.99 8.50 10.01 11.52 13.03
Peer Median 1.61 7.45 9.06 10.67 12.28 13.89PEG ratio 1.71 7.92 9.63 11.34 13.05 14.76
1.81 8.38 10.19 12.00 13.81 15.621.91 8.84 10.75 12.66 14.57 16.48
Price Target (1 yr) 1 8 . 1 6Current Price 1 3 . 6 0Annual Return 3 3 . 5 %
Hi gh e r gr o w t h r a t e ( 6 . 6 3 % )Lo w e r Be t a t h a n pe e r s ( 1 . 7 0 )St ron ger M arg ins
As o f 1 1/1 5/2 01 0 clo sin g price s M ar ke t C apita liza tio n ($m il) E nte rprise Va lu e / C on se nsu s 5 yr e xpe cte dE quity E nterprise E BITDA M ultiples (x) P /E M ultiples (x) growth P /E to growth: ROE
Comparable companies Pric
$
AP V l
TT
TT
imate(%) "PEG" rat io TT
Alexander & Baldwin, Inc (A
EX) 36.12 1,490 1,980 10.27 9.38 8.57 20.00 17.45 9.50% 1.71 3.49%
Dry
ips, Inc. (DRY
) 5.39 1,590 4,160 7.94 7.53 7.13 37.96 5.44 5.50% 1.23 1.94%
Navios Marit ime Partners LP (NMM) 18.87 936 1,160 12.48 12.01 11.51 13.66 15.10 4.33% 3.07 20.56%
Eagle Bulk Shipping, Inc. (EGLE) 5.61 349 1,350 12.28 12.06 11.85 19.08 18.1 1.77% 7.68 2.92%Genco Shipping & Trading Ltd. (GNK) 16.49 561 2,010 6.42 6.19 5.95 3.82 5.89 4.00% 1.02 14.50%
Diana Shipping (DSX) 13.60 1,100 1,120 6.71 6.29 5.90 9.23 8.83 6.63% 1.33 11.65%
Peer Mean 16.50 985 2,132 9.88 9.43 9.00 18.90 12.40 5.02% 2.94 8.68%
Peer Median 16.49 936 1,980 10.27 9.38 8.57 19.08 15.10 4.33% 1.71 3.49%
*Source:Yahoo Finance
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SWOT Analysis
STRENGTHS
- Undervalued with a potential forprice increase
- Low debt and strong balancesheet
- Recent investments in the form offixed costs
STRENGTHS
- Undervalued with a potential forprice increase
- Low debt and strong balancesheet
- Recent investments in the form offixed costs
WEAKNESSES
- Currently offers no dividend- Industry specific risks- 60% of revenue comes from 3charterers- Investment losses from FFAs
WEAKNESSES
- Currently offers no dividend- Industry specific risks- 60% of revenue comes from 3charterers- Investment losses from FFAs
OPPORTUNITIES
- High wheat yield in Australia
- Increased global demand linked toeconomic recovery
- Expected increase in demand fordry commodities
OPPORTUNITIES
- High wheat yield in Australia
- Increased global demand linked toeconomic recovery
- Expected increase in demand fordry commodities
THREATS
- of 1.7 in slow economicrecovery
- Oversaturation of market
- Volatility of BDI market
- Economic environment in China
THREATS
- of 1.7 in slow economicrecovery
- Oversaturation of market
- Volatility of BDI market
- Economic environment in China
SWOTSWOT
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Conclusion
Recommendation: BUY
Price Target: $18.16 (33% upside)
Current price does not fully account for
strong expected growth, high margins,and ROE
DSX has stronger client base inAustralia and Asia, can take advantageof higher demand for commodities
DSX also carries significant upside with
economic recovery and increase inglobal trade
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Valuation Appendix: EPSSensitivity
2010E Implied Prices Peer Mean P/E Multiples
16.90 17.90 18.90 19.90 20.90
1.39 23.50 24.89 26.28 27.67 29.06
Consensus 1.49 25.19 26.68 28.17 29.66 31.15
EPS 1.59 26.88 28.47 30.06 31.65 33.241.69 28.57 30.26 31.95 33.64 35.33
1.79 30.26 32.05 33.84 35.63 37.42
2011E Implied Prices Peer Mean P/E Multiples
10.40 11.40 12.40 13.40 14.40
1.34 22.65 23.99 25.33 26.67 28.01
Consensus 1.44 24.34 25.78 27.22 28.66 30.10EPS 1.54 26.03 27.57 29.11 30.65 32.19
1.64 27.72 29.36 31.00 32.64 34.28
1.74 29.41 31.15 32.89 34.63 36.37