A Review of Safe Bulkers (SB) 3Q2011 Financials

There was nothing special or concerning in Safe Bulkers (SB) third quarter 2011 financial report.

http://www.safebulkers.com/sbpr101711.pdf

This stock is a value buy under $7.00 per share, but there is significant downside risk due to deteriorating world economic conditions.  The dry bulk shipping market has an oversupply of ships and demand for shipping services at current prices is eroding due to a worldwide recession.  I think there will be another opportunity to buy SB for $2 – $3 per share like in March 2009.

DIVIDEND RECORD

Safe Bulkers is a high dividend stock.  It is currently yielding 8.93% ($0.60 annual DIV/$6.72 share price).

Safe Bulker’s dividend record remains unchanged.  The company management will pay its 14th consecutive dividend payment since the company’s IPO in 2008.  The dividend is unchanged at $0.15 per share.  The dividend payout ratio increased to 53.5% ($0.15 DIV/$0.28 EPS) from 45.5% last quarter ($0.15 DIV/$0.33 EPS).  I will become concerned when this value goes above 80%.  There diminished earnings are more than enough to pay the dividend in the future.

EARNING POWER

Safe Bulkers’ earning power will continue to decline as the world economic recession continues.  Several of its ships will have to take extremely low charter rates in the next few quarters.  The ships at the bottom of this graph will need to find charters in the dismal spot market.  The Pedhoulas Leader, Venus Heritage, and Venus History have charters that end in October 2011.  The Andreas K and the Panayiota K have charters that end in April and May 2012 respectively.  These ships will be a drag on earnings.

Image003

Net income for the third quarter of 2011 decreased by 10% to $19.8 million from $22.0 million during the same period in 2010.  Net income for the first nine months of 2011 decreased by 16% to $66.2 million from $78.5 million during the same period in 2010.  The company’s management reported that the decrease in net income was mostly attributed to: slightly higher net revenues offset by a lower time charter equivalent (TCE) rate, higher vessel operating expenses, increased depreciation, losses on interest rate derivatives contracts, a decrease in interest expense, and some other small financial costs.  For details see their financial statement (linked above).

From Zack’s we read: Safe Bulkers (NYSE:SBSnapshot Report) had sales growth of 1.4% during the last fiscal year. The company has reported $165.6 million in sales over the past 12 months and is expected to report $196.9 million in sales in the next fiscal year.  http://www.zacks.com/research/get_news.php?id=293l8525 .

The higher sales will come from some newbuild ships that are starting service in 2012.  Yawn!  Nothing exciting here and that’s good.  At least you can understand how Safe Bulkers earns its profits (unlike financial institutions and insurance companies).

BALANCE SHEET

Image005

Current asset decreased quite a bit.  They gained possession of the MV Venus History on September 9th, 2011.  That accounts for the gains in Vessels, net.  And they received some advances for vessel acquisition.  All that added up to a 2.9% increase in total assets.

It is nice to see Safe Bulkers paying down some of their debts.  Total liabilities at the end of December 2010 were $561.239 million.  Total liabilities have dropped to $510.035 million as of September 2011.  This improved their overall balance sheet, but they are a little strapped for cash right now.

Book value per share improved from $3.70 in December 2010 to $4.50 in September 2011.  This is a nice increase of 21.6% in book value per share.

CONCLUSION

Safe Bulkers remains a buy below $7.00.  There is downside risk due to the world economy in recession.   You will have an opportunity to buy below book value.  I’m waiting for lows like in March 2009 (approx $2.00 – $3.00 per share).  I don’t own Safe Bulkers yet.

The left side of the following chart scares me.  Nothing has been solved in the world economy.  There is another financial crisis coming.  SB’s stock price will be a victim.  That huge decline is more than enough to wipe out any high dividend gains.

Image007

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Published in: on October 24, 2011 at 1:17 pm  Leave a Comment  

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