Earlier this week (2/16/22), shipping biggie Golden Ocean (GOGL) released their Q4 2021 results. Since I already discussed dry bulk shipping peer Star Bulk (SBLK) in a prior post, not too surprising, there is some overlap on views between the shipping peers. Let’s start with the Wow! factor
- Vessel charter average (across all vessels) after excluding some expenses, TCE (or Time Charter equivalent) was $35,256 daily. As a reminder, SBLK managed a TCE of $37K daily in Q4 2021.
Although GOGL also increased their Q4 2021 payout, so it was
Q1 - 25c
Q2 - 50c
Q3 - 85c
Q4 - 90c
I opted to not rate this a Wow! (detailed explanation a little later)
Ok, let’s delve into the Macro stuff
Similar to SBLK, GOGL point to shipyard capacity and increased vessel costs as factors that have tempered huge expansion of the dry bulk shipping fleet. GOGL mgmt add an additional factor - ability to obtain financing on newbuilds. GOGL mgmt are also not too concerned about the dry bulk orderbook - about 7% total, and less than 3% each of the next two years. An interesting point here. While GOGL mgmt did point out multiple factors that will curtail fleet expansion, GOGL themselves placed an order for 7 newbuild Kamsarmaxes (from Chinese shipyards) with 6 of the 7 newbuilds deliveries scheduled for 2023!
There was another data-point that GOGL mgmt pointed out in their Q3 2021 call, and repeated again in their current report. Whatever annual GDP % growth the world ends up having, the dry bulk shipping market ends up being slightly higher %. The two years that were the exception to this development were 2009 (financial crisis) and Covid-19 pandemic (2020) - suggestion is that it takes an extreme event for the phenomena to not play out.
Recall in the SBLK report, I pointed to the subtle data-point that SBLK could claim to participate in the four significant “commodities” i.e. iron ore, coal, grains & minor bulks (fertilizers, cement, other agricultural products, etc). GOGL’s fleet only has 3 Ultramax vessels (2 owned, 1 charter-in), and so their participation in minor bulks is not too significant.
Page 6 - 8 of their Q4 report has the big macro points
One other item included is the Chinese steel market.
In the short term, the Company is monitoring developments related to the Chinese real estate industry, which accounts for approximately
30% of domestic steel demand, as well as the potential for stimulus driven infrastructure projects to offset any decline in demand.
This is a bigger concern for GOGL since the company is weighted heavily towards Cape category (48 owned Cape category vessels, 8 chartered-in Capes, Total fleet (owned and chartered-in) 92 vessels). So, 56 of 92 vessels are Cape category vessels
The first quarter of the year is typically the slowest quarter in an annual cycle. Back in Q3 2021, GOGL mgmt opted to lock in more short term coverage for Q1 2022. A TBD at this time, but it will probably work out for them, as GOGL was able to capture rates at least twice the Cape spot rates so far on about 1/3 of their Cape category vessels. In mid-2021, GOGL mgmt suggested the market was not incentivizing multi-year charters. None of the analysts on the recent call asked, but I suspect GOGL has not changed their position on multi-year fixtures.
Okay, GOGL as an investment.
Both SBLK and GOGL have a variable dividend policy. But, digging a little deeper, GOGL is a much riskier investment idea than SBLK. I think some of it (perhaps a lot of it) has to do with GOGL’s primary backer - John Fredriksen. He will usually stand behind his shipping and/or drilling company investments (Seadrill’s second bankruptcy probably an exception to this). But, in return, when the
company he is backing is in a good market, he expects high dividend payouts. Maybe payouts that are way too high, and eventually lead to problems when a sector has a slowdown a few quarters or a few years later. That Q4 2021 payout is a perfect illustration of this.
Per 12/31/21, Cash & cash equivalent is $197M
GOGL has slightly over 200M shares outstanding.
So that Q4 2021 dividend of $0.90/sh is going to drain - $0.9 * 200M = $180M, or most of that cash in March 2022. Sure, there’s cash coming in from operations and from accounts receivable, etc. But, it still seems like GOGL operate closer to the edge than their peers.
In GOGL’s defense, the company did prepay a $50M financing revolver in Q4 2021, and have access to a second $50M revolver. So, it isn’t a terribly dire situation.
One of those $50 financing revolvers can cover the equivalent of their annual interest payments.
GOGL is HohumYNWA’s third largest individual holding. Pleased with its run YTD in 2022 and shares may still have room to run prior to the ex-dividend data.