GOLDEN OCEAN 55% market-adjusted leverage After a successful equity raise, vessel transactions, and a rise in asset values, we calculate that Golden Ocean has 55% market-adjusted leverage, which has allowed it to terminate waivers with banks and led us to reinstate dividends for 2018e (see our 3 September update). We reiterate our BUY recommendation and NOK83 target price.
Positive estimate changes from fleet addition offset by sale of non-core assets. We have lowered EPS by 2% for 2017e, 10% for 2018e, and 11% for 2019e as the positive impact on operating profit from the recent acquisition of two Capesize vessels by Hemen Holding is negatively offset by the sale of six Ultramax vessels (endSeptember) and a 9% increase in the number of shares issued. We are above Bloomberg consensus EBITDA by 14% for 2018e and 9% for 2019e based on our Capesize spot rate forecasts of USD17k/day for 2018e and USD20k/day for 2019e.
Successful equity raise and transaction highlights. Golden Ocean successfully raised USD100m to acquire two 2016-built Korean Capesize vessels from Hemen Holding for USD86m, which, net of a USD9m cash settlement, increases Golden Ocean’s cash balance by cUSD55m. Hemen Holding is to provide a USD43m seller’s credit bearing interest at LIBOR+3% per annum and maturing three years after delivery of the vessels, with Hemen Holding maintaining its 34% ownership post the transaction.
Golden Ocean free to pursue opportunities and return value to shareholders as it has terminated the covenant waivers with its lenders following improved liquidity. We believe Golden Ocean would reinstate dividends with a 100% payout ratio from Q4 2017, resulting in a DPS of USD0.51 for 2018e, equal to a yield of 6%.
Accretive on NAV by NOK1.2/share, but 1-year forward NAV unchanged. We calculate the ship for share transaction was NAV-accretive by NOK1.2/share, but our 1-year forward NAV is unchanged at NOK66 as the positive impact of the Capesize acquisition is offset by lower leverage from the sale of Ultramax vessels.
BUY recommendation and NOK83 target price reiterated based on 1.25x our 1-year forward NAV of NOK66/share (unchanged), derived from c18% higher second-hand prices for Capesize and Panamax vessels. We calculate a current NAV of NOK52/share, up from NOK46 since our last update on 3 September.