DryShips (DRYS, Financial), the core shipping company, is investing significantly in offshore drilling. The net asset value of its shipment segment is nearly $438 million, with the fleet having a contract backlog of about $380 million till the fiscal year 2017. Apart from its shipping segment, DryShips has also made some key investments in the assets and liabilities for the Ocean Rig development, valued at approximately $681 million with two short-term credit facilities adding $305 million.
Smart moves
DryShips is investing significantly in Ocean Rig at a fair market value of nearly $220 million for 25.2 million shares. Further, Ocean Rig has delivered impressive cash dividends of nearly $75 million in 2014 of which DryShips has captured $44 million.
In addition, the weaker commodity pricing scenario along with the newly declared strategy of the Chinese government to invest significantly in the key infrastructure projects for supporting the overall growth might lead to extra demand growth, improving the entire seaborne trade and enhanced utilization rates.
End-market action
The solid increase in the iron ore exports for Brazil, Australia and China coupled with the key strategy of the Chinese government to expand investments into the infrastructure projects is forecasted to hugely benefit DryShips by exploring the strategic Shipping markets of China and significantly expand the company’s top line and bottom line.
Regarding the crude tanker market’s industries section in 2014, DryShips experienced a major fall in oil prices, mainly due to a significant growth in U.S share, estimated increase in production by OPEC countries and the key refusal of Saudi Arabia to reduce the output amid poor GDP growth worldwide.
Lately, Ocean Rig announced a $0.19 per share of dividend payment on March 23, which is believed to add nearly a further $15 million to its already robust cash reserves.
Ocean Rig has significant development plans and excluding the un-contracted innovatively developed drillship deliveries. Ocean Rig targets on expanding the fleet, including the development and deployment of best 12,000 feet water depth 7th generation drillships in 2016 and 2017.
Going forward, the expansion plans of DryShips look realistic with a solid support from the well-diversified and robust funding sources that include ECAs, bonds, term loans and impressive operating cash flows.
The accelerated key investments of DryShips in expanding its market presence by increasingly adding strategic wells to its already solid well portfolio in addition to delivering superior shareholder returns is estimated to provide DryShips with a competitive edge, going forward.
During 2014, DryShips witnessed major expansion in the number of Suezmax vessel orders with just five ordered in 2013 to 40 fresh orders placed in ship yards. However, the Aframax shipments contracted to 24 in 2014 from approximately 79 shipments during 2013.
This sharp decline in the crude oil prices is forecasted to get partially nullified by the expansion in transportation demand owing to the strategic development of stock coupled with an impressive demand for floating storage which is believed to further strengthen the demand supply balance and expand the current trade levels.
Conclusion
Overall, the investors are advised to Hold their position into DryShips Inc. looking at the poor current valuation levels. The PEG ratio of 0.63 is better than the industry’s average of 1.26 and indicates attractive company’s growth, going forward. However, the profit margin and diluted EPS of -2.17% and -0.11 respectively depicts no profit but loss. DryShips also has huge debt on its balance sheet with total debt of $5.52 billion against total cash of $658.94 million only and thus restricting the company to execute prospective growth investments.
