Solid underlying earnings clouded by impairments
Golden Ocean – 3Q12 Update
Recommendation: Neutral – Target NOK 4.6
23.11.12
Analyst: Petter Narvestad +47 23 11 30 40 pn@fondsfinans.no
This report was prepared by an analyst employed by Fondsfinans ASA, the Norwegian affiliate of Fondsfinans Inc., who is not registered as a research analyst with FINRA or subject to FINRA rules
governing research. See the last page of this report for Important Disclosure Information
1
Rough conditions as expected
KEY POINTS FROM 3Q REPORTING
Newbuildings
-
Two Kamasarmax orders cancelled due to late delivery
Vessel prices were renegotiated earlier this year
Process started to reclaim USD 45.8m paid to the yard (of which USD 20,4m debt
financed)
Remaining CAPEX on the two vessels were USD 2.2m
No significant effect on our NAV
Will however free up cash, which can be used to buy back shares, reduce debt or
invest in other assets
Vessel values
Golden Ocean – 3Q12 Update
-
Has made extraordinary loan down-payments of USD 15.5m in July and USD 14.3m in
October as falling vessel values trigger minimum value clauses in loan agreements
Management sees weak markets likely through 2013
-
2
Market may the improve
Not seeking long-term charters beyond 2013
Coverage of sailing fleet of 65% for Capesize in 2013 and 75% for Panamax
4Q12 earnings should be in line with 3Q12
Solid underlying performance
2Q12 NUMBERS & ESTIMATE CHANGES
Golden Ocean – 3Q12 Update
3Q12 Deviation table
Estimate changes
3Q12
FF Est.
Diff
Cons.
TC income
47.0
44.8
5%
EBITDA adj
26.1
20.0
31 %
24.8
EBIT
-9.7
10.0
na
15.0
PTP
-17.1
3.0
na
9.7
EPS reported
-0.04
0.01
na
0.02
EPS adjusted
0.03
0.01
na
0.02
Revenues and EBITDA ahead of
expectations with charter costs being
the biggest deviation
Vessel impairments of USD 25.2m and
write down of bad debt (receivables) of
USD 2.6m pulls EBIT into negative
Adj. cash flow from operations USD
21.3m
Source: Fondsfinans Research, Bloomberg
3
Estim ate changes
2012E
2013E
EBITDA
Change
103
9%
122
-3 %
EBIT
Change
32
-40 %
77
-3 %
Pretax profit
Change
7
-78 %
52
-5 %
43
54 %
0.09
53 %
52
-5 %
0.11
-4 %
2012E
8.1
0%
9.0
0%
2013E
14.0
0%
20.0
0%
Adjusted Profit
Change
EPS adjusted
Change
(USD 1,000/day)
Panamax spot
Capesize spot
Two Kamsarmax newbuilds at
Jinawan has been cancelled in 3Q
leaving fewer vessels in the 2013
fleet
Contracts - The insulating factor
CONTRACT COVERAGE
Golden Ocean – 3Q12 Update
Panamax coverage
3-year Panamax TC rate assessed
at USD 9,000/day
3-year Capesize TC rate assessed
at USD 14,000/day
- Was USD 10,625/day 3 months ago
-
Source: Fondsfinans Research, Golden Ocean, Clarkson
4
Capesize coverage
Was USD 13,500/day 3 months ago
Source: Fondsfinans Research, Golden Ocean, Clarkson
Vessel values continue to ease but pace is slowing
DRYBULK MARKET OVERVIEW
Vessel values
Drybulk vessel values easing
slowly
Golden Ocean – 3Q12 Update
Downside probably limited, but
“fire-sales” may create further
negative newsflow
Caps industry’s access to debt
financing
Further bankruptcies and
cancellations of charter contracts
at hand
Source: BRS-Paris
5
No reason to get excited!!!!
TARGET & RECOMMENDATION
Valuation
Target calculation
U SD m
U SD / Shar e
214
238
290
35
127
150
0.47
0.53
0.64
0.08
0.28
0.33
Other debt
Loans, leases
Remaining CAPEX
-40
-516
-136
-0.09
-1.14
-0.30
NAV
NAV/Share NOK
USD/NOK
No. shares (mill)
363
0.80
4.6
Golden Ocean – 3Q12 Update
Market value Capesize
Market value Kamasarmax
Market value Panamax
Other assets
Adj: Cash end 3Q12
Excess value contracts 15% discount
Panamax lonterm contract rates
Capesize long-term contract rates
Panamax OPEX
Capesize OPEX
Value 5-year Panamax
Value 5-year Capesize
Discounting factor
Source: FF Research, Clarkson, Baltic
Source: Fondsfinans Research,
6
5.7
454
USDk/day
USDk/day
USDk/day
USDk/day
USDm
USDm
Exchange
9 000
14 000
-5 500
-6 000
19.7
30.1
10 %
Target little changed at NOK 4.60
Neutral maintained
- Further yard restructuring may
provide valuation upside, but not
until next year
- Dry-bulk market remains a challenge
Key figures
3Q12 UPDATE
2010
2011
2012E
2013E
2Q 12
3Q 12
Revenues
319
246
188
226
49.0
47.0
EBITDA incl. sales gains
139
127
103
122
27.6
26.1
Operating profit
127
47
32
77
14.4
-9.7
Pre-tax profit
108
14
7
52
6.4
-17.1
Net profit
111
14
7
52
6.6
-17.1
EPS reported
0.24
0.03
0.01
0.11
0.01
-0.04
EPS, adj.
0.20
0.05
0.09
0.11
0.03
0.03
Dividend, USD / share
0.18
0.06
0.00
0.00
0.00
0.00
Panamax spot dayrate
20.3
30 %
13.7
-32 %
8.1
-41 %
14.0
72 %
8.0
8.5
EV/EBITDA
7.3
6.3
8.0
6.9
P/E, adj
6.3
11.6
8.1
6.7
P/BV
1.00
0.54
0.65
0.59
ROE
16.7%
4.5%
8.1%
9.3%
ROCE
12.9%
4.6%
3.2%
7.4%
Golden Ocean – 3Q12 Update
Change
7
Scraping the bottom
DRYBULK MARKET OVERVIEW
Golden Ocean – 3Q12 Update
Capesize average TCE
Drybulk fleet has grown 9.6% YTD
- 2011 was +14.7%
Order book is at 21% of fleet
Source: Fondsfinans Research, Clarkson
8
Panamax average TCE
58.8m DWT capacity net added to
fleet YTD
30.0m DWT scrapped
Source: Fondsfinans Research, Clarkson
Lower Chinese steel and ore inventories impacting market
near term
Golden Ocean – 3Q12 Update
MARKET OBSWERVATIONS
China Steel output & inventories
China ore imports vs. Baltic Dry
China Iron ore and steel inventories
Port congestion
Source: Fondsfinans Research, Bloomberg
9
No real relief seen until late 2013 at the earliest
DRYBULK MARKET OVERVIEW
Fleet growth
Golden Ocean – 3Q12 Update
No vessels
Capesize
Panamax
Handymax
Handysize
Total
Dry bulk (m dw t)
Capesize
Growth
Panamax
Growth
Handymax
Growth
Handysize
Growth
Total
Fleet end October 2012
1500
2235
2667
3044
9446
Current Orderook Orderbook
fleet
% of fleet
277
50.9
18 %
2007
131
173
54
31 %
108
138
23.8
17 %
77
86
13.9
16 %
76
674
143
21 %
393
Cancellations/delays: 20% of 2012/ 10% of 2013 orders
Scrapping: 13.5m dwt Capesize in 2012/13, 9m dwt Panamax in 2012/13
Source: Fondsfinans Research, Clarkson
10
2008
144
9.2 %
115
6.0 %
83
8.1 %
77
1.2 %
418
6.5 %
2009
170
18.3 %
121
5.6 %
92
10.6 %
76
-0.9 %
462
10.4 %
2010
210
23.4 %
137
12.6 %
109
18.8 %
81
6.6 %
536
16.2 %
Net fleet grow th
2011
2012E
249
286
19.0 %
14.6 %
155
172
13.6 %
10.6 %
127
143
16.2 %
12.5 %
84
88
3.4 %
5.0 %
615
688
14.7 %
11.8 %
On order
252
688
446
423
1809
2013E
296
3.7 %
187
8.9 %
149
4.1 %
89
1.3 %
721
4.8 %
Key disclosures
3Q12 UPDATE
Definitions of ratings
Risk assessment
Neutral
Low risk: with a potential of min 5%. Medium risk: with a potential of min 10%. High risk: with a
potential of min 15%.
Low risk: -5% to +5%. Medium risk: -10% to +10%. High risk: -15% to +15%.
Sell
Low risk: min 5%. Medium risk: min 10%. High risk: min 15%.
Buy
High degree of
chartered in vessels
Trading FFAs
Volatile markets
USD earnings
A large number of chartered in vessels increases the downside risk if the market
takes an expected dive in dayrates. Golden Ocean operates close to 30 vessels
in addition to a n umber of newbuildings for delivery in 2009/11 (some of these
have been sold and will be handed over to the new owners at delivery from yard).
The company also charters in a varying number of vessels on short- to mediumterm contracts.
Trading FFAs also increases the risk. If used to reduce the overall earnings risk,
trading FFas could be positive.
The dry bulk markets have historically be very volatile. We expect the volatility to
continue and expect the Golden Ocean share to reflect the underlying volatility of
the dry bulk market. Demand for dry bulk shipping services will fluctuate with
global economic activity, thus a slowdown in global economy will have a negative
effect on dayrates, especially with a current dry bulk orderbook of about 70%.
Norwegian investors are exposed to major changes in the USD since Golden
Ocean’s revenues are in USD.
Risk ratings are based on price volatility, fundamental criteria and perceived risk. Ratings are: Low (L), Medium (M) and High (H).
Target: Our valuation as of today.
Time frame of target: Target is what we value the share as of today.
Recommendation distribution as of 12.11.12:
Companies in each recommendation category that have been
investment banking clients over the past 12 months:
Recommendation
Buy
Neutral
Sell
Total
Recommendation
Buy
Neutral
Sell
Total
No
27
14
1
42
Percent
64 %
33 %
2%
100 %
No
3
1
0
4
Percent
11 %
7%
0%
Our intention is to issue preview and update research on a quarterly basis.
Our investment recommendation is elaborated in accordance with “The Norwegian Securities Dealers Associations” standards.
This report has not been sent to the company for correction of any factual errors.
Fondsfinans is organized with Chinese walls between the Corporate Department and the Research/Broking Department. In addition,
Fondsfinans has internal instructions and guidelines for handling sensitive information.
The analyst receives compensation that is impacted by overall firm profitability, including investment banking activities.
Fondsfinans is under supervision of The Financial Supervisory Authority of Norway.
The analyst is partner in DIS Fondsfinans.
Golden Ocean – 3Q12 Update
The recommendation has not been changed. The previous recommendation was issued 19.11.2012.
Ownership per 23.11.12 in Golden Ocean Group:
Analyst (including his/her closely related persons or companies):
0, corresponding to 0% of the company share capital
Employees (including their respective closely related persons or companies):
0, corresponding to 0% of the company share capital
Group Fondsfinans (including the holdings of its Chairman, his spouse and their closely related companies, Erik Must AS and its 100%
controlled subsidiaries):
0, corresponding to 0% of the company share capital
Fondsfinans may hold shares in Golden Ocean Group as a result of daily trading/market making. Information on such holdings is not
given when of non-significant value.
This report was issued and distributed 23.11.12.
11
12
2009
93
37
957
1 087
86
473
4
523
Balance Sheet Data
Cash
Other current assets
Fixed assets
Total assets
Current liabilities
Long-term liabilitites
Minority interest
Shareholders' equity
1.15
48 %
438
0.8
116
-155
7
-32
0
6.4
5.3
10.6
0.0%
1.6
32.5%
12.6%
P/E adjusted
P/CF adjusted
EV/EBITDA
Dividend yield
P/Book
Return on equity (adj.)
Return on assets (adj.)
Book equity/share
Equity ratio
Net interest bearing debt
Net int. bear. debt/equity
Cashflow from operations
Investments
Asset sales
Free cash flow
Dividends
412.0m
0.53
0.28
0.34
Key figures
No. of shares, m
EPS reported
EPS adjusted
CFPS adjusted
Dividend
0.00
Spot dayrate assumptions (USD 1,000 / day)
Capesize
38.3
Panamax
15.6
141
120
Cashflow adjusted
EBITDA
1.26
47 %
434
0.8
141
-161
171
152
-57
70
583
1
574
180
82
965
1 227
2010
6.3
4.8
7.3
14.4%
1.0
16.7%
11.0%
1.16
44 %
505
1.0
132
-132
0
0
-50
99
583
0
529
138
61
1 013
1 212
2011
11.6
4.9
6.3
8.9%
0.5
4.5%
3.8%
456.0m
0.03
0.05
0.13
16.4
13.7
35.0
20.3
457.0m
0.24
0.20
0.26
0.06
59
127
10
0
25
246
0
-36
-73
-11
127
-34
-46
47
-22
-10
14
0
14
2011
0.18
119
139
-20
0
92
-100
0
117
Adjustments
Tax effect adjustments
Adjusted profit/loss
2010
1.25
47 %
444
0.8
77
-47
30
60
0
99
528
0
567
144
61
990
1 195
2012E
8.7
4.4
7.7
0.0%
0.6
7.4%
5.3%
455.7m
0.08
0.09
0.18
9.0
8.1
0.00
80
103
3
0
40
188
0
-42
-29
-14
103
-40
0
64
-23
-3
38
0
38
2012E
1.37
51 %
457
0.7
97
-110
0
-13
0
99
495
0
620
99
61
1 055
1 215
2013E
6.7
3.6
6.6
0.0%
0.6
8.8%
6.4%
455.7m
0.11
0.11
0.21
20.0
14.0
0.00
97
103
0
0
52
226
0
-51
-39
-15
122
-45
0
77
-24
0
52
0
52
2013E
5.8 / 3.6
12 month high/low:
319
0
-31
-139
-10
139
-31
19
127
-20
0
108
3
111
2009
4.4
1.16
48 %
Price (NOK):
Book equity per share (USD):
Equity ratio:
279
0
-26
-123
-10
120
-23
37
133
-15
100
218
-1
217
Shipping
23 Nov 12
Feb 2013
4.6
Neutral
Operating revenues
Gains from vessel sales
Operating expenses
TC expenses
Administration
EBITDA
Ordinary depreciation
Other items
Operating profit
Net interest
Other
Pre-tax profit
Taxes
Profit/loss reported
Sector:
Date:
Next result:
Target (NOK):
Recommendation:
Golden Ocean Group
Golden Ocean – 3Q12 Update
453.5m
0.03
0.03
0.05
7.0
8.0
0.00
22
27
-1
0
12
47
0
-10
-7
-3
27
-10
-2
15
-5
3
13
0
13
1Q 12
453.5m
0.01
0.01
0.03
15.0
8.0
0.00
14
22
0
0
4
45
0
-11
-8
-4
22
-10
0
12
-8
0
4
0
4
4Q 12E
%
40.5 %
15.4 %
6.0 %
4.8 %
3.0 %
1.8 %
1.4 %
1.2 %
0.9 %
0.9 %
0.8 %
23.3 %
100 %
105.60m
453.50m
Total shares
01.05.2012
453.5m
-0.04
0.03
0.05
7.0
8.5
0.00
21
26
30
0
13
47
0
-11
-7
-4
26
-9
-27
-10
-5
-3
-17
0
-17
3Q 12
Mill shares
183.7
70.0
27.2
21.7
13.5
8.0
6.3
5.4
4.3
4.0
3.8
453.5m
0.01
0.03
0.06
7.0
8.0
0.00
25
28
8
0
14
49
0
-10
-8
-3
28
-11
-2
14
-5
-3
6
0
7
2Q 12
454m
348
435
783
Shareholders
Hemen Holding Ltd.
Farahead Investments Inc
Clearstream banking
Skagen Kon-Tiki
Bank of New York Mellon
Statoil Pensjon
Goldman Sachs
Folketrygdfondet
Swedbank
Carling
Deutche Bank
Other shareholders
Major shareholders
454.0m
0.01
0.04
0.06
30.0
14.0
0.00
29
34
14
0
20
57
0
-9
-11
-3
34
-8
-15
10
-5
1
6
0
6
4Q 11
Shares outs.:
Market cap (USDm):
Net int.-bearing debt (USDm):*
Enterprice Value (USDm):
Analyst: Petter Narvestad +47 23 11 30 40
Company overview
3Q12 UPDATE
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13