2007

Ocean Freight Inc. Offers Exposure to Robust Dry Bulk Sector

Bank of America’s analyst team comprised of Daniel L. Barcelo, Ilya Balabnovsky, Joshua D. Kramer, and Thomas D. Sturges enlightened us this week on newly public OceanFreight Inc. and the rebirth of the dynamic dry bulk sector. (It’s worth noting that Philippe Lanier’s name has come off Bank of America’s shipping roster, and we will be sure to keep you posted if he is to resurface.) Bank of America initiated coverage of OceanFreight’s stock with a BUY rating and a $23/share target. OceanFreight’s stock currently trades at 8.2x 2008E EV/EBITDA, marginally below the sector average of 8.7x. Priced at $23/per share, the company trades among peers after an adjustment for the survey expense basis, as is the norm within peers, and which Bank of America warrants due to the company’s fleet profile, dividend strategy, management experience and homogeneity of the sector.

Operating in the dry bulk sector, there is an encouraging outlook for OceanFreight as iron ore and coal demand is only offset by expected fleet growth, which would lower shipping rates to mid cycle by the end of the decade. Dry bulk shippers are experiencing a solid earnings environment driving shipping rates and asset values higher on high demand for commodities, especially iron ore and coal. Important to the success of the company is fleet strategy. Their initial acquisition of 7 vessels will deliver six 7-12 yr old Panamax vessels all under time charters and one 17-year-old Capesize vessel with an undetermined time charter. Management companies AllSeas and Quintana will handle day-to-day management of the vessels and Cardiff will oversee delivery of vessels and management performance.

This is only an excerpt of Market Commentary – 07/07/2007

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