DRYSHIPS Analysts Update

Re: Jack A. Bass Managed Accounts

1 % set up fees

20 % annual performance fee

Shares of DryShips (NASDAQ:DRYS) was the target of some unusual options trading activity on Friday. Stock investors acquired 21,588 call options on the stock, AnalystRatingsNetwork.com reports. This is an increase of approximately 179% compared to the average volume of 7,726 call options.

DRYS has been the subject of a number of recent research reports. Analysts at Zacks reiterated a “neutral” rating on shares of DryShips (NASDAQ:DRYS) in a research note to investors on Friday. They now have a $3.00 price target on the stock. Separately, analysts at UBS AG initiated coverage on shares of DryShips (NASDAQ:DRYS) in a research note to investors on Thursday, August 22nd. They set an “outperform” rating on the stock. They noted that the move was a valuation call. Finally, analysts at Imperial Capital initiated coverage on shares of DryShips (NASDAQ:DRYS) in a research note to investors on Thursday, August 22nd. They set an “outperform” rating and a $2.75 price target on the stock.

Five equities research analysts have rated the stock with a hold rating and three have assigned a buy rating to the stock. The stock presently has a consensus rating of “Hold” and a consensus target price of $2.40.

DryShips (NASDAQ:DRYS) traded up 4.16% on Friday, hitting $2.88. 23,919,192 shares of the company’s stock traded hands. DryShips has a 1-year low of $1.46 and a 1-year high of $2.78. The stock’s 50-day moving average is $2.12 and its 200-day moving average is $1.95. The company’s market cap is $1.163 billion.

DryShips (NASDAQ:DRYS) last posted its quarterly earnings results on Wednesday, August 7th. The company reported ($0.05) EPS for the quarter, beating the Thomson Reuters consensus estimate of ($0.07) by $0.02. The company had revenue of $336.10 million for the quarter, compared to the consensus estimate of $329.57 million. During the same quarter in the prior year, the company posted ($0.05) earnings per share. The company’s quarterly revenue was up .0% on a year-over-year basis. On average, analysts predict that DryShips will post $-0.25 earnings per share for the current fiscal year.


Maple Leaf Foods Inc.

Maple Leaf Foods Logo

Maple Leaf Foods Logo (Photo credit: Wikipedia)


 TSX : C$14.44 HOLD 
Target: C$15.00

Maple Leaf Foods is a leading Canadian food processing company. The company operates in Canada, the US, and the UK manufacturing both protein and bakery products which it sells to a variety of end users including retail, foodservice, and grocery store chains.
All amounts in C$ unless otherwise noted.

Investment recommendation

Maple Leaf announced an agreement to sell its Rothsay rendering and biodiesel division to Texas-based Darling International, for $645 million.
We believe this represents a fair purchase price and note that the transaction is: (1) accretive at the EBITDA level; and (2) will allow for a meaningful reduction in net debt from currently elevated levels. Incorporating the transaction and rolling forward the estimates used to generate our target price from 2013 to 2014, our target price moves to C$15.00 (from C$13.50). However, we maintain our HOLD rating.
Investment highlights
 The transaction is accretive at the EBITDA level. Given that Rothsay generated $85 million of EBITDA in 2012, Darling is paying 7.6x 2012A EBITDA for the division. This is above Maple Leaf’s current multiples of 7.2x 2012A EBITDA and 7.0x 2014E EBITDA.
 Management stated that it will use the proceeds to pay down debt. Post closing of the transaction expected at year-end, we forecast net debt/EBITDA of 2.2x. This represents a meaningful improvement from our prior 4.0x estimate. We note that it also gives management considerably more latitude in capitalizing on core business related opportunities, while also potentially expediting the return of capital
to shareholders.
Our 12-month target represents 7.2x 2014E EBITDA. While we view Maple Leaf’s divestiture as positive, and remain constructive on the name longer term, the next few quarters are expected to remain pressured by volatile commodity costs and increased transactional costs as the company implements its Value Creation Plan. As a result, we believe investors should wait for a more attractive entry point

Safe Bulkers Raises Returns On Jack A. Bass Managed Accounts

The Justice Society Returns

The Justice Society Returns (Photo credit: Wikipedia)

1 % monthly payouts are not effected by this rise in (any) particular holding.



Above Average
As of 22 Aug 2013 at 12:46 PM

ATHENS, GREECE — (Marketwired) — 08/21/13 — Safe Bulkers, Inc. (the “Company”) (NYSE: SB), an international provider of marine drybulk transportation services, announced today its unaudited financial results for the three- and six-months period ended June 30, 2013. The Company’s Board of Directors also declared a quarterly dividend of $0.05 per share of common stock for the second quarter of 2013.

Summary of Second Quarter 2013 Results

  • Net revenue for the second quarter of 2013 decreased by 12% to $41.4 million from$47.0 million during the same period in 2012.
  • Net income for the second quarter of 2013 increased by 14% to $24.6 million from $21.5 million, during the same period in 2012. Adjusted net income(1) for the second quarter of 2013 decreased by 36% to $15.1 million from $23.7 million, during the same period in 2012.
  • EBITDA(2) for the second quarter of 2013 increased by 14% to $36.1 million from $31.6 million during the same period in 2012. Adjusted EBITDA(1) for the second quarter of 2013 decreased by 21% to $26.6 million from $33.7 million during the same period in 2012.
  • Earnings per share (“EPS”) and Adjusted EPS(1) for the second quarter of 2013 of $0.32and $0.19 respectively, calculated on a weighted average number of shares of 76,679,328, compared to $0.28 and $0.31 in the second quarter 2012, calculated on a weighted average number of shares of 76,653,848.
  • The Company’s Board of Directors declared a dividend of $0.05 per share of common stock for the second quarter of 2013.

Bell Canada Enterprises Inc.

English: Text logo for BCE, the major business...

English: Text logo for BCE, the major business of Bell Canada. (Photo credit: Wikipedia)


BCE : TSX : C$41.90
BCE : NYSE : US$40.59
Target: C$44.00 

BCE is Canada‘s largest communications company and the incumbent telco in most of Central and Eastern Canada. It owns 100% of Bell Canada, which provides voice, data and video services to residential and business customers. Bell Canada has approximately 5.4 million access lines, 7.7 million wireless subscribers, 2.2 million video customers and 2.1 million ADSL subscribers. BCE also has a 44% controlling stake in Bell Aliant.
All amounts in C$ unless otherwise noted

While EPS and FCF guidance were not raised despite the inclusion of Astral, and wireless was a little soft, wireline recovery is encouraging – Better than expected wireline subscribers, revenue and EBITDA are significant as Bell still derived 56% of EBITDA from wireline in Q2/13. However, this was offset by weaker than expected wireless results and the lack of immediate accretion from the Astral acquisition. While we continue to see limited downside risk in BCE shares, significant EBITDA growth remains a challenge. We prefer TELUS for valuation and fundamentals.
Consolidated Q2/13 results were largely in line – EBITDA of $2,066 million compares with our $2,071 million estimate and consensus of $2,064 million. It was up 1.1% on a reported basis and 2.5% on a recurring basis. Adjusted EPS of $0.77 was also in line, but down from $0.97 in Q2/12 due to large tax recoveries in Q2/12. FCF of $903 million was above our $869 million estimate due to lower than forecast capex and was up 12.0%.
Wireline results were better than forecast – Line loss, as well as broadband and TV subscriber growth were better than expected. As a result, at $2,506 million wireline revenue easily beat our $2,469 million estimate, but was still down 0.9%. Given higher than expected revenue, EBITDA of $979 million was above our $967 million estimate and down 2.9% (1.9% normalized), a significant improvement from the 4.5% decline in Q1/13.
Wireless results were below expectations – The 96,390 postpaid net additions were in line. ARPU of $56.85 was below our $57.41 forecast, but up 2.7%. Driven by lower than expected ARPU and higher than forecast COA, EBITDA of $609 million was below our $623 million estimate, but up 8.9%.
Maintaining C$44.00 sum- of the parts target price.



The Chefs’ Warehouse

English: A picture of myself

English: A picture of myself (Photo credit: Wikipedia)

CHEF : NASDAQ : US$20.12
Target: US$24.00
The Chefs’ Warehouse was founded in 1985 and is a premier distributor of specialty food products with a focus on serving the specific needs of chefs who own and/or operate some of the nation’s leading menu-driven independent restaurants, fine dining establishments, country clubs, hotels, caterers, culinary schools and specialty food stores in the United States.

Investment recommendation
We believe that CHEF has a considerable geographic growth and industry consolidation opportunity within the specialty food service industry that should deliver double-digit growth.
Investment highlights
 Initiating 2015 revenue and EPS estimates of $787M and $1.20, assuming a modest 5% contribution from acquisitions and 5% internal growth. Raising price target to $24 from $20, reflecting strengthening valuations among peers.
 We anticipate that Q2 results, when reported over the coming weeks, will illustrate a continued improvement in customer demand and product inflation trends.
 We continue to believe that CHEF has a robust opportunity to consolidate a highly fragmented specialty food distribution sector and believe its positioning between both a fragmented customer and supplier base is a position of strength.
At 19x next year’s earnings and 10x EBITDA, the shares appear reasonably valued vs. peers. Our target assumes a 20 multiple applied to our new F2015 EPS estimate.


EOPN : NASDAQ : US$17.41
Target: US$20.00

E2open sells cloud-based supply chain management solutions for sophisticated trading networks. Powering 7 of the world’s 10 most complex supply chains, the firm’s software provides visibility into trading processes via technology for planning, execution, real-time modifications,
and deeply functional analytics. E2open is headquartered in Foster City, CA and went public in July, 2012.

Investment thesis

EOPN’s solid quarter, positive commentary on business outlook, and our view that growth will be modestly better than our previous forecast are likely enough to drive the shares higher at least in line with subscription revenue growth of about 25% longer term. Reiterate BUY, increase target to $20.
Investment highlights
 A solid quarter: slight revenue and EBITDA upside. Non-GAAP revenues and adjusted EBITDA loss of $16.1M and ($3.6M) were respectively $0.3M and $0.9M ahead of our estimates. Subscription revenue grew 26% y-o-y (slightly better than forecast) and total revenues were up 4% as the firm’s transition of implementation services to partners will be a near-term drag on overall growth. FCF loss of ($3.3M) was in line with our estimate and bookings in the quarter were skewed slightly towards upsell into existing customers versus new logos (EOPN signed 4 new customers in the quarter).
 Outlook: F2014 more or less unchanged. Management inched higher the low end of revenue guidance and noted that new/upsell bookings growth is now expected to be at the high end of the guidance range (roughly +30% to $91.5M). Our F2014 estimates are effectively unchanged; we increased our F2015 revenues by $1M and expect EOPN to be roughly FCF breakeven.
Valuation and price target
We are increasing our price target by $2 to $20, which is based on a 5.4x EV/revenue multiple applied to our C2014 estimate of $94.5M plus roughly $35M in prospective net cash.

TeraGo Inc.

Image representing Data Centers Canada as depi...

Image via CrunchBase

TGO : TSX : C$7.41
Target: C$14.00

TeraGo provides carrier-grade wireless broadband and local voice services to small and medium-sized businesses. In addition, the company provides wireless backhaul services to Canadian wireless carriers. TeraGo’s national network covers 46 major markets across Canada and currently serves more than 6,500 customers locations. The company recently acquired Data Centers Canada, adding co-location services to its product offering.
TeraGo closes the acquisition of Data Centers Canada – TeraGo closed its previously announced $9.5 million acquisition of Data Centers Canada
(DCC) on May 31 and hosted an analyst call. While the transaction multiple was not disclosed, we estimate that it is a reasonable 6.9x 2014E EBITDA. With its 16,000 sq. ft. facility in Vaughan, ON, one of TeraGo’s primary fixed-wireless markets, we see significant cross-selling
DCC is expected to be immediately accretive to EBITDA and EPS – DCC has an ARPU per rack of $1,050 and a base of 165 customers. We expect
$2.8 million of revenue contribution in 2014. Management expects DCC to be immediately accretive to EBITDA and EPS and is targeting 50%
EBITDA margins from DCC after the integration process is complete in Q4/13. This compares with TeraGo’s Q1/13 EBITDA margin of 34%.
Expect minimal capex for DCC in the near to medium-term – With a current capacity of 280 racks and only 207 racks in use today, TeraGo sees
minimal near to medium term capex requirements. We do not forecast any major incremental capacity capex requirements until 2016. DCC
also has enough space to accommodate 304 racks in its data centre at this time.
Increasing our target price to $14 from $12 due to the inclusion of DCC in our estimates – While much will depend on execution, we believe our
new forecasts that include DCC are conservative. Given growth and accretion potential from the acquisition, we are increasing our DCFderived
target price to $14 (EV of 7.4x our new 2014E EBITDA minus our new 2014E year-end net debt) from $12 (EV of 7.2x our previous 2014E EBITDA). We continue to believe that TeraGo shares have been deeply oversold since the company announced the end of its strategic
review on April 16 and encourage small cap investors to take advantage.

21Vianet Group

Target: US$15.00

The largest carrier-neutral Internet data center service provider in China, 21Vianet hosts customers’ servers and networking equipment and provide interconnectivity services. The company also provides managed network services through its data transmission network

Investment recommendation

We maintain our BUY rating and $15.00 price target following 21Vianet’s Q1/13 report that demonstrates its ability to sustain its growth
momentum and overcome some of the temporary disruptions from capacity upgrades. We believe that the incremental investments in new
data centers, network capacity and cloud computing, while temporarily dampening margins, will result in higher growth and profitability in 2H13
and beyond. Priced at 5.7x 2014E adj. EBITDA, the shares of VNET offers compelling risk/reward for investors, in our view.
Investment highlights
 Solid revenue, slightly soft margin on investments – Q1/13 revenue came in stronger than expected (RMB 435.7M vs. 433.3M CGe) with
slightly lighter-than-expected EBITDA (RMB 80.1M vs. 82M). We note that higher-than-expected operating costs were attributed to higher
bandwidth costs with greater network capacity and continued investments ahead of revenue contribution from cloud computing.
 Signs of hope from Q2/13 outlook – Although Q2/13 guidance is not as strong as we had hoped, it nonetheless confirms our view that the
disruption from recent capacity upgrade is now behind and that the company’s growth momentum is picking up again. Following two quarters of decelerating growth, we believe the change in trajectory  marks an important inflection point for investors.
 shift to higher MRR cabinets in large cities and revenue contribution from Microsoft cloud will likely improve both revenue and margins

Imperial Metals Corp

English: 100 million dollar note after operati...

English: 100 million dollar note after operation Sunrise. Issued 2nd May 2008. (Photo credit: Wikipedia)

III : TSX : C$10.91
Target: C$16.50

Imperial Metals is a Canadian-based company with interests in two mature producing copper mines in British Columbia (Mount Polley [100%]; Huckleberry [50%]). More importantly, the future and value driver of the company resides in its 100% interest in the very large but undeveloped Red Chris copper-gold project in northwest BC, which is permitted and scheduled to enter production via an open-pit in late-2014.
All amounts in C$ unless otherwise noted
Imperial Metals reported Q1/13 EPS of C$0.14, in line with both our forecast and consensus. We calculate adjusted (to include Huckleberry)
EBITDA of C$23 million vs. our forecast of C$25 million. The end-Q1 cash balance was just C$97,000 (excluding III’s C$12 million share of
the Huckleberry JV’s cash balance).
Our 2013-15E adjusted EBITDA forecasts (accounting for Huckleberry as an equity investment) are C$100 million, C$116 million, and C$330
Action and valuation
We are maintaining our BUY recommendation, but decreasing our 12- month target price from C$17.00 to C$16.50, based on the average of: i)
10x our 2014E EV/EBITDA, which would imply a share price of C$10.55; and ii) our NPV10 estimate of C$22.13. Our NPV10 estimate of C$22.13 includes C$12.15 for Red Chris in-situ value.
Next potential catalyst and investment risks
Red Chris financing remains a key valuation risk, and in our view a potential catalyst for share price appreciation. Our current valuation assumptions are C$100 million of equity priced at C$10 per share, and new debt financing of $400 million at an interest rate of 10%. On this basis, we are forecasting an end-2014 cash balance of C$41 million

Trinidad Drilling Ltd.

A petroleum drilling rig capable of drilling t...

A petroleum drilling rig capable of drilling thousands of feet (Photo credit: Wikipedia)

TDG : TSX : C$7.06
Target: C$8.50

Trinidad Drilling Ltd. is a Canadian based drilling contractor with operations in western Canada, southern US and Mexico. Trinidad’s rig portfolio is largely comprised of deeper rigs. The company also operates coring rigs, surface hole rigs and barge rigs.
All amounts in C$ unless otherwise noted.

Investment recommendation
EPS (ex-FX gain) of 29c came in ahead of consensus of 26c. EBITDA of $85 million beat consensus of $80 million but was just shy of our $88 million forecast. The consensus beat is attributed to better than expected results from the company’s Canadian drilling division. TDG’s Canadian fleet realized 73% utilization vs the industry average of 58%, due to both high demand for the company’s relatively high performance fleet and management’s ability to crew virtually all of its rigs in a seasonally busy period. The division’s result drove overall company outperformance, as TDG’s -3% y-y decline in total company revenues and -8% y-y decline in total company EBITDA represented outperformance vs peers (other drillers active in both Canada and the US reported flat to -21% y-y declines in revenues and -10% to -27% y-y declines in EBITDA over the quarter).

However, we note that in order to satisfy high customer demand, TDG pushed the repairs and maintenance costs it typically incurs in the first quarter into the remainder of the year. Considering this near-term cost reallocation, but also our belief that TDG has a higher performance rig fleet that should continue to outperform longer term, we have revised our 2013/14E EPS from 60c/75c to 57c/80c. Rolling forward the estimates used to derive our target price from 2013 to 2014, our target price increases from C$8.10 to C$8.50. We note our revised target price reflects 4.5x 2014E EV/EBITDA and 10.6x 2014E P/E target multiples.
Divergence between higher vs lower performance fleets continues to surface:

On TDG’s 1Q13 results call, management noted that “older style equipment is being particularly impacted” during softer pockets of demand. We note not only are higher-performance rigs competing for the same work as lower-performance ones, but also that the ownership of NAM oil and gas assets is generally shifting towards larger-cap E&Ps, NOCs and supermajors who place higher value on top-tier equipment vs their small-mid cap E&P peers.


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