Earnings call: Safe Bulkers reports strong Q1 performance, fleet expansion

Safe Bulkers, Inc. (NYSE:SB), a global provider of marine drybulk transportation services, announced a robust start to 2024 with their first-quarter financial results. The company has been proactive in fleet modernization, ordering a new Phase 3 vessel, selling three older ships, and repurchasing 4.9 million shares. A dividend of $0.05 per share was declared.

The company’s strategy to maintain a young and energy-efficient fleet is in anticipation of stricter environmental regulations. With a solid cash flow visibility and a strong drybulk market outlook, Safe Bulkers is poised for growth.

They have a leverage of 34% and a debt level that is well-balanced with the scrap value of their fleet. The company also has significant liquidity and contracted revenues, supporting its optimistic view of the freight market’s near- to medium-term prospects.

Key Takeaways

Safe Bulkers reported a strategic focus on fleet modernization, with one new Phase 3 vessel ordered and three older vessels divested.The company repurchased 4.9 million shares and announced a dividend of $0.05 per share.A strong cash flow visibility is reported, with average daily rates of $24,400 for capesize vessels and $17,200 for panamax vessels.The drybulk market is expected to remain robust in 2024, with increased cargo volumes and a tight supply and demand balance.Safe Bulkers’ leverage stands at 34%, with a debt of $534 million and liquidity of approximately $216 million.The company has contracted revenues of about $276 million and is optimistic about expanding its fleet while providing shareholder returns.

Company Outlook

Safe Bulkers plans to continue expanding its fleet with a focus on energy efficiency and compliance with environmental regulations.The company is optimistic about the freight market’s trajectory and is prepared to capture growth opportunities.

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Bearish Highlights

Operating expenses increased in the first quarter due to the supply of spares for dry dockings.

Bullish Highlights

Charter agreements secured for vessels at rates higher than the market average due to their upgraded features.Second-hand vessel prices have risen, indicating a strong market performance.

Misses

The company noted that opportunities for fleet renewal are limited due to shipyard constraints.

Q&A Highlights

CEO Polys Hajioannou highlighted the company’s hands-on approach to monitoring the freight market and their readiness to act on chartering opportunities.The possibility of additional stock buybacks was mentioned if the share price remains low relative to the fleet’s net asset value.A commitment to steady dividends for shareholders was reiterated.

Safe Bulkers’ strategic maneuvers in the first quarter of 2024 demonstrate their agility in a dynamic market. With a focus on modernization and efficiency, the company is well-positioned to navigate the evolving landscape of maritime transportation.

The drybulk sector’s positive outlook, coupled with Safe Bulkers’ financial health and strategic chartering, signals potential for continued success in the upcoming quarters.

InvestingPro Insights

Safe Bulkers, Inc. (SB) has shown resilience and strategic acumen in the dynamic maritime transportation sector. As investors look to gauge the company’s financial health and market position, InvestingPro provides a detailed analysis to complement the latest updates.

InvestingPro Tips reveal that management’s confidence in the company’s prospects is reflected in their aggressive share buyback strategy, which could signal a belief in undervalued stock price. Meanwhile, the company’s impressive gross profit margins, which stand at 63.03% for the last twelve months as of Q1 2024, underscore operational efficiency and pricing power within the industry.

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Real-time data from InvestingPro further enriches the perspective on Safe Bulkers. The company’s market capitalization is currently $532.75M USD, and it is trading at a low earnings multiple with a P/E ratio of 7.39, suggesting that the stock could be undervalued relative to earnings. Additionally, the company’s recent performance has been strong, with a 27.07% total return over the last three months.

InvestingPro also provides additional insights for investors seeking a deeper understanding of Safe Bulkers’ financials and market performance. There are 13 additional InvestingPro Tips available, offering a comprehensive analysis of the company’s financial health, market trends, and potential investment opportunities. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription for more in-depth information.

Safe Bulkers’ strategic focus on fleet modernization and shareholder returns, combined with the InvestingPro metrics and tips, paints a picture of a company that is navigating the complexities of the shipping industry with a clear vision and strong financial discipline.

Full transcript – Safe Bulkers Inc (SB) Q1 2024:

Operator: Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call on the First Quarter 2024 Financial Results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer; Dr. Loukas Barmparis, President; and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at 212-661-7566. I must advise you that this conference is being recorded today, April 30, 2024. The archived webcast of this conference call will soon be made available on the Safe Bulkers website at www.safebulkers.com. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter 2024 earnings release, which is also available on the Safe Bulkers website, again www.safebulkers.com. I would now like to turn the conference call to one of your speakers today, the President of the company, Dr. Loukas Barmparis. Please go ahead, sir.

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Loukas Barmparis: Good morning to all. I’m Loukas Barmparis, President of Safe Bulkers. In the first quarter of 2024, we operated within a more robust market in comparison with the previous year. In alignment with our environmental, social, and governance strategy, we ordered one additional Phase 3 newbuild. Concurrently, we continued to process of modernizing our fleet by divesting three older vessels. Moreover, we executed the repurchase of 4.9 million shares of our common stock while declaring a dividend of $0.05 per share of common stock. Our strategic focus persists on fostering enduring value for our shareholders and upholding a resilient capital structure. This commitment is further evidenced by our efforts towards a young and energy-efficient fleet, thereby securing operational excellence in anticipation of forthcoming stringent environmental regulations. We ensure that our capital expenditure is adequately covered by our contracted future revenues, fortifying our balance sheet towards the trajectory of sustainable growth. Subsequent to a comprehensive review of our forward-looking statements language presented in Slide 2, our attention — the transition to the market update in Slide 4. Noteworthy is the volatility experienced in the cape market segment. It is pertinent to highlight that all eight of our capes are present in period charter boosting on average remaining chartered duration of exceeding two years with an average daily rate of approximately $24,400. This provide us with an appreciable degree of cash flow visibility notwithstanding the prevailing daily market rate today of around $19,500. On the Panamax front, the charter market is at about $17,200. Progressing to Slide 5, we present an overview of CRB commodity index’s fluctuation in basic commodities future prices. The geopolitical landscape with tensions in regions such as Middle East, the Red Sea, and Ukraine underscores the heightened level of global uncertainty. The global economic recovery is slow but steady. The drybulk market is expected to remain strong in 2024 with a tightening supply and demand balance attributed to increased cargo volumes, particularly in the Capesize segment driven by higher iron ore shipments from Brazil to China — and China. Rerouting away from the Red Sea and Panama Canal has also bolstered in demand in smaller segments. There is the expectation of gradual control of inflation. Despite the delay in interest rate cuts, the expectation for global economy — for global economic resilience remains strong. The IMF April forecast of 3.2% expansion in global GDP for both 2024 and 2025 is accompanied by control over inflationary pressures. According to BIMCO, the forecasted global drybulk demand growth stand at 3%, increased for 2024. In China, the IMF April projection of GDP growth for 2024 stood at 4.6%. China faces challenges, of course, in growth dynamic driven by internal factors, while the resilience of India’s robust domestic demand and sustained infrastructure investments emerges as a stabilizing force amidst the prevailing economic uncertainty. Let us now proceed to examine the supply side dynamics in Slide 6. The drybulk order book remains at single-digit percentages. Our outlook remains optimistic regarding the near- to medium-term trajectory of the freight market underscored by the low order book. Approximately 25% of the medium-sized fleet surpasses the 15-year mark, increasing the anticipated impact of fleet aging and stringent environmental regulations. Vessels constructed in Japan have superior design efficiencies. 85% of our company’s fleet comprised of Japanese build vessels, surpassing the global average of 40%. The strategic advantage positions of fleet are favorable to compete within the environmental-based charter market. As one of the few drybulk companies with a substantial Phase 3 order book, strategically positioned below prevailing market valuations, underscore our commitment to compete on the basis of operational environmental excellence. Fleets comprising of efficient Japanese vessels and vessels delivered post 2014 will be able to remain relevant and compete within the regulatory frameworks and greenhouse gas targets. A number of our recent developments is presented in Slide 8. This includes the declaration of 5% — $0.05 dividend per common share, divestment of three older vessels, the delivery of two Phase 3 newbuilds alongside the initiation of orders for two additional Phase 3 vessels. In Slide 9, we present Safe Bulkers’ key attributes such as our robust management, ownership alignment, comparable leverage, ample liquidity, contracted revenues, a selling track record, and the quality and competitiveness of our fleet, strategically positioned to leverage the regulatory landscape remaining true in our commitment to expand by building a resilient company and reward our shareholders. Moving to Slide 10, we present an insight into the advantage of our green fleet. The breakdown presented in the top right graph underscores the environmental credentials of our fleet comprising today of 46 vessels with 20 vessels having undergone environmental upgrades, nine being Phase 3 and 11 being echo, and the remaining six scheduled to be upgraded within this year. The bottom graph represents our fleet renewal strategy with a divestment of 12 older vessels, acquisition of seven second-hand vessels, a steadfast ordering comprising of seven plus one Phase 3 newbuilds resulting to a stable 10-year average fleet aids over the past four years, as confirmed by Slide 11. This trajectory of fleet expansion serves as a testament to our commitment towards sustainability. I now pass the floor to our CFO, Konstantinos Adamopoulos, for our quarterly financial overview.

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Konstantinos Adamopoulos: Thank you, Loukas, and good morning to everyone. As a general note, during the first quarter of 2024, we operated in a stronger charter market environment compared to the same period in 2023 with increased revenues due to higher charter hires. These earnings from scrubber-fitted vessels increased operating expenses and higher interest expenses due to increased interest rates. Let us focus now on our liquidity, our cash flows, and our capital structure, as presented in Slide 13. We are maintaining a comfortable leverage of 34%. Our debt of $534 million remains comparable to our fleet’s scrap value of $338 million although our fleet is about 10 years old. Our weighted average interest rate stood at 6.51% for our consolidated debt, with a portion of €100 million being fixed at 2.95% coupon in an unsecured five-year bond. We have paid $79 million of our capital expenditure requirements in relation to our existing order book, with remaining capital expenditure at $201 million. Our liquidity and capital resources stand strong at approximately $216 million, which together with a contracted revenue of about $276 million, provides flexibility to our management in capital allocation. Furthermore, we have additional borrowing capacity in relation to seven existing unencumbered vessels and eight newbuilds upon their delivery. Moving on to Slide 14 with our quarterly financial highlights for the first quarter of 2024 compared to the same period of 2023. Our adjusted EBITDA for the first quarter of this year stood at $46.8 million compared to $33.1 million for the same period in 2023. Our adjusted earnings per share for the first quarter of 2024 was $0.20, calculated on a weighted average number of 100.4 million shares, compared to $0.10 during the same period in 2023, calculated on a weighted average number of 118.4 million shares. Slide 15 will present quarterly operational highlights for the first quarter of 2024 in comparison to the same period of 2023. During the first quarter of this year, we operated 47.08 vessels on average, earning a TCE of — on average of $18,158 compared to 43.3 vessels with earning on average TCE of $3,760 during the same period in 2023. The company’s net income for the first quarter of 2024 was $25.3 million, compared to net income of $19.3 million during the same period in 2023. Concluding in Slide 16, we present a list of our Phase 3 vessels already in our fleet. The global economy is experiencing multiple challenges. Persistent inflation, tight financial conditions, Russia’s invasion in Ukraine, Middle East crisis, all weigh on the market output. Based on financial performance, the company’s Board of Directors declared a $0.05 dividend per common share. We’d like to emphasize that the company is maintaining a healthy cash position of about $82 million as of April 19, 2024, another $164 million available in revolving credit facilities. Overall, a combined liquidity and capital resources of $246 million. Furthermore, we have contracted net of [commissions] (ph), from our non-cancellable spot and period time charter contracts of $274 million net of commissions and before scrubber revenue, as well as additional borrowing capacity in relation to seven unencumbered existing ships and eight newbuilds upon their delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand further our fleet while still rewarding our shareholders. This concludes our presentation. We are now ready for the Q&A session.

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Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Omar Nokta with Jefferies. Please proceed with your question.

Omar Nokta: Hi, guys. Thank you. Good afternoon. A couple of questions for me. Maybe just first off, perhaps on the term charter market. Noticed you fixed the Maria for four to five years at just under $26,000. That ship looks like a standard cape, ten years old, but the rate is pretty high relative to clearly market averages in recent years, and also even just forward assessments, whether it’s the FFAs or the one-year, three-year, five-year charter market assessment. Is there something specific on the charter, or is the ship — is there anything specific on the ship that gives us this type of premium, or is this simply the going rate now for a four- to five-year contract?

Polys Hajioannou: Yes. This vessel was with a specific charter on index link, and as the market was rising in Q1, the charter wanted to change it into long-term period charter of fixed rates. So, the company took advantage of that requirement and converted this to four-year charter, which, as you said, is above the current market, given that the vessel is Japanese-built and environmentally upgraded with various fixtures that have improved recently here consumption. So, we managed to achieve for four years — minimum four years of $25,950 per day, which is a very healthy rate. And the company locked in at that time. Also at the same time, we had another vessel, 2012 built, which we fixed forward for delivery in September of this year for 18 months to 24 months at $26,000 a day, which is also a very healthy rate, given that the fixture is on a forward base. So, there was this spot of opportunity and we had the right vessels at the right time available, and we managed to secure these long charters, which usually typically are available in hot markets of capesize vessels.

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Omar Nokta: Yeah. And obviously, the markets eased a bit. It’s still obviously very solid, generally speaking. How would you characterize the liquidity now in the term market? Would you be able to repeat that type of duration going out 12 months to 18 months or four years? Could you do that? Obviously, the rate may have come down, but is there enough liquidity still to be able to secure that type of visibility?

Polys Hajioannou: Look, this sort of charters come at the spots when you have a very hot [Capesize] (ph) spot market. So, if the spot market is $40,000 or going even higher than $40,000, charters can book contracts, can cover in the futures market their exposure, and such deals are available so long you have the right vessel available at the right moment. Most of our capesize, almost all of them, they are on period charters. Some of them, they expire in ’25, some in ’26. But in the hot market, let’s assume we have a hot market in the second half of the year, could be opportunity. One charter wants to extend one year ahead of time. One of the other vessels could switch an existing charter into something longer and bigger. So, all these scenarios, we are very hands-on on what’s going on in the freight market as we are working in-house all our chartering activities. And when the opportunity arises, we try to take the advantage of such requirements. On the Kamsarmax vessels, of course, the charter durations are much shorter because the forward curve is not moving usually that fast as with Capesize rates. And on those one, the charters are more like one year or one-and-a-half year duration.

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Omar Nokta: Okay. Thanks for that color. And then just kind of separate topic just on the capital allocation. Just wanted to ask what you’re thinking in terms of the buyback going forward. You bought a good amount of stock, obviously under the 5 million share authorization from late last year. You did cancel it just before finishing the full 5 million. You effectively got close to it, but you didn’t do all of it, but you went ahead and terminated it. Just wanted to get a sense, any reason why you canceled it with a little bit less to go? And any thoughts on a new one? And then also, is it just simply the stock performance being so strong as well you backed-off in the buyback recently?

Loukas Barmparis: About capital allocation, as you are aware, we push our earnings from operations towards the new investments, because it’s very important to renew the fleet and to be competitive in the following years because the new regulations will have a substantial — will create substantial problems to ships that cannot perform. And we don’t want to leverage the company. So, I want to point out that the leverage today, this quarter was 34%. In terms of the buyback program, buyback program almost exhausted. But we — I mean, we all believe in the company that the price of our stock repeating, it’s our belief. It’s quite low compared to the asset values. So, from time to time, we may take the advantage of the opportunity to initiate an additional buyback problem, although this has not been yet decided. And the other point is that at the same time, we reward our shareholders with a steady dividend. Until now, $0.05 per share, which is also, I think, reasonable on the basis also of the capital increases. Because we expect that the stock price — the price of our stock, the increasing stock price of our stock will increase as the new regulations will come and play a major role in the charter market.

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Omar Nokta: Thank you. No, that makes sense. Appreciate it. That’s it for me. Thank you.

Operator: Our next question comes from the line of Climent Molins with Value Investor’s Edge. Please proceed with your question.

Climent Molins: Good afternoon. Thank you for taking my questions. Following up on Omar’s question on the repurchases, could you provide some commentary on the average price paid per share and on the amount that was spent post quarter-end?

Loukas Barmparis: We don’t declare the exact prices, but what we can say is that we have almost exhausted the existing buyback program. And any decision in the future will depend on the capital allocation that we think is better. So, we can — for example, I could say that we moved towards an acquisition of a new big vessel, as you are aware. So, this played an important role. So, we are targeting also the new big market, and of course — but we still believe that our price is quite low compared to the net asset value of our fleet.

Polys Hajioannou: Of course, if I may add, you may see the last quarter, the stock price was between $4 and $5. So, you have a low part — low price on the low — on the bottom part and the upper part. So, it was in that range, the purchases with what was in the market range. What I may add more what’s happening right now in the market, and it’s the most important thing to take note of, we have second-hand prices rising the last two quarters, especially in the first quarter of this year with a strong freight market. And we see this on all type of vessels, on all the spectrum, from Ultramax, Kamsarmax, Capesize, all of second-hand price vessels arising by $3 million and $4 million in the last quarter or so. And the company is also using some of its older ships, as you have noticed, as cash — it’s cashing on those older ships to finance new acquisitions, namely on new technology Phase 3 — IMO Phase 3 vessels. On the other hand, we have to say that the opportunity for fleet renewal is not unlimited, given the fact that most of the shipyards are now caught in bears in second half ’27 or even first half ’28. So, the opportunities are becoming less and fewer and fewer. So, you may find the old [berth] (ph) — if you have good relations with yachts in Japan, the old berth every now and then, and this is the opportunity one should not be losing when such a berth is available to take advantage and book the berth. That’s why we need liquidity, not only for share repurchase but also to take advantage of those opportunities when they arise. And I don’t think in the next six to nine months something will change. To the contrary, we believe that we are entering into a tighter market. We know that the latest data from Suez Canal is that passages are 66% lower than now than they were in end of November, when the crisis began. We see that the strikes on the merchant shipping by the Yemen rebels is continuing. So, we don’t expect this to change anytime soon, which will add fuel to the present freight market. So, the company must be ready to make use of its liquidity, not only on share repurchase, but on other opportunities as they arise before all these opportunities are gone, because we cannot order a newbuild for 2028 delivery, you can understand it’s four years forward is too far away. And the cost of redelivery installments is very high. So, when the opportunity arise for early berths, we should be able to move quickly.

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Climent Molins: Thanks for the color. I also wanted to ask about operating expenses, which increased quarter-over-quarter, although from a very low starting point. Could you provide some commentary on the forecasts you have for operating expenses for the remainder of the year?

Loukas Barmparis: Usually the operating expenses that we see in the first quarter a little bit more — a little bit increased. And the reason is that because there are substantial supplies of [spares] (ph) that will be used for the dry dockings. And so you may see, you compare the last quarter of the year and the first quarter of this year, we’ll see that it’s a substantial increase. However, we don’t expect in the annually you have a substantially different figure.

Climent Molins: Makes sense. That’s all from me. Thank you for taking my questions, and congratulations for the quarter.

Loukas Barmparis: Thank you.

Operator: There are no further questions in the queue. I’d like to hand the call back to management for closing remarks.

Loukas Barmparis: Thank you very much for attending this quarter — our quarter results webcast and we’re looking forward to discuss again with you in the next quarter. Have a nice day.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.

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