long idea - exm

exm is a greek dry-bulk shipping company, and its global seaborne transportation fleet transports dry bulk commodities such as iron ore, coal, grains, bauxite, fertilizers and steel products. exm currently has 18 vessels with more than 1 million deadweight tons (DWT) of shipping capacity, but will soon see that capacity more than triple to 3.7 million DWT when its upcoming marriage to Quintana Maritime is finalized. the merger will expand the company's fleet to 47 vessels and the union is expected to be completed next month.

last week, exm reported blowout fourth-quarter numbers as its revenue and profits catapulted on a jump in time charter rates. revenue from operations rose 73% to $60.9 million, compared to $35.2 million during Q4 2006. during the quarter, the dry bulk shipper saw its utilization rates improve to 97%, from 93%, and its average charter rate rose to $38,539 a day from $20,849 a year ago. the jump in daily charter rates is quite impressive considering that exm only had 22% of its available days exposed to the dry bulk shipping spot market.

in addition, earnings for the quarter came in at $34.1 million, or $1.71 per share, compared with $9.3 million, or $0.41, for the same period in 2006. the company also reported full year 2007 earnings of $3.94 per share, excluding a $6.2 million gain related to vessel sales, versus 2006 operating eps of $1.61. during 2007, revenue from operations increased 43% to $177.5 million.

chairman and acting ceo gabriel panayotides commented on their best ever operational and financial results: “We believe this is a direct result of our proactive fleet deployment strategy according to which we seek to secure the majority of our vessels under long term time charters, enhancing our operating cash flow visibility, while at the same time also maintaining exposure to the spot market with the remainder of our fleet, which allows us to take advantage of continued strength in the shipping market…Our overall objective over the past few years has been the disciplined approach of expanding our asset base. The recent announcement of the potential Quintana acquisition signifies an important step towards achieving our goal of becoming one of the world's premier full service dry bulk shipping companies, with a diverse and modern asset base from Handymax to Capesize vessels. The proposed merger would increase our flexibility and our ability to service our customers' needs. In addition, we believe that the combination of the two entities will create one of the most experienced management teams in dry bulk sector."

given the continued strong global demand for dry bulk commodities, especially from china and india, the increased length of shipping routes and the high levels of congestion within some global ports, such as australia, i continue to maintain a positive outlook for the dry bulk shipping sector, acknowledging the wild gyrations of the industry’s spot market rates. i find exm attractive at the current price, as they balance the potential boost the spot markets can provide with the steadiness of longer-term fixed-price contracts. exm currently has 61% and 15%, respectively, of its fleet operating days fixed for 2008 and 2009.

it is also worth considering that potentially up to 30% of the world’s fleet, based on tonnage, could be retired in the coming years and shipyard capacity is reported to be very limited until 2011. this effectively could limit the new intermediate supply of dead weight tonnage capacity to meet the rapidly expanding global demand. with the share price down from a 52-week high of $81.99 to now trade for just 4 times the current consensus 2008 earnings estimate of $6.82 and with reuters estimates forecasting eps of $7.51 for 2009, i think exm is very attractively priced. throw in a 2.8% dividend yield and i would seriously consider adding exm to a broadly diversified portfolio up to 35. i wouldn't be surprised to see it trade to the 60 to 70 area over the next several years.

disclosure: none, seriously looking though