After my recent post on Diana Shipping, I received an email asking me to look at Paragon Shipping. I have to say that I’m impressed.
While Diana has a stronger balance sheet, Paragon is certainly not over leveraged with a debt to equity ratio of 0.78:1. At year-end Paragon had $134 million in cash and $309 million in debt (current maturities and long-term debt). In 2009, the company had almost $100 million in what I would consider owner cash flow (net income plus depreciation) and no capital expenditures or ship purchases. This cash flow was produced by a company that currently has a $240 million market cap. If that valuation isn’t appealing enough, the company trades at 53% of book value.
I still like Diana Shipping, and think they are poised to benefit in this shipping downturn, but the market is pricing in some of this benefit with a market cap exceeding their book value. With Paragon, there is greater upside. In addition, Paragon is still paying a dividend of $0.05 per quarter (4.3%).
Like I noted with Diana, I am certainly no expert on dry bulk shipping companies. The cost side is not that difficult, and you can see that well-capitalized shipping companies could buy new vessels at discounts over the next several years. The more volatile side of the equation is the rates that can be charged. Based on their press release, it looks like rates have been locked in at nice returns over the next several years.
Disclosure: No current interest in Paragon Shipping.