Last Price: $7.07
Upside Target: $13
Summary:
Spun off from parent company DSX several months back. Management did an extremely dilutive secondary offering to expand container fleet by 150% and up to 250% (if they buy 5 more boats all in). As a result of the secondary, DCIX is down 50% from when it was spun off. DSX management spun off DCIX in an attempt to focus on container shipping which is expected to be much more profitable (less oversupply) than drybulk shipping in the coming years.
Thesis:
- Will start paying an 8% dividend (annualized) starting in August with upside potential of a 12% estimated dividend if they establish a credit facility to buy two more boats.
- The stock will start to "screen" well in the coming months as DCIX gets onto people's radars.
- Comparable containership companies trade at 5-6% dividends which would imply 70-120% upside. DCIX also has a better balance sheet.
- Management bought $12mn of stock in the secondary offering at $7.50.
- I may be off slightly on the stats here, but the volume of containers shipped has only had 1 down year in the last 40. This was in 2009 when it was down HSD.
- When DSX initially went public it followed a very similar pattern. Issue more stock to buy more boats, stock drops nearly 50%, and then rockets higher.
- The secondary offering included an underwriters option to purchase more shares at $7.50 for a month. This expires during the 2nd week of July 2011 and will act as an overhang until then.
- Contract renewals in 2013 (shorter duration than comps) and who knows what will happen to shipping rates.
- Customer concentration (largely a circumstance of sale leaseback transactions with shipping companies)
- ~28% new boats coming online in the next 5 years (reflects low barriers to entry nature of the biz - but longer term as interest rates rise its less of a risk).
- Older boats (what they recently acquired) have a much higher daily operating cost (that may not be modeled correctly).
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