CTRM stock is poised to drop 50% from its estimated book value per share
Sea Beaver (NASDAQ:CTRM) is a bulk shipping company that has recently raised a lot of capital and bought a good number of bulk carriers. The value of CTRM shares is difficult to assess at this time until the company provides more information.
It’s hard to know exactly how much cash the company currently has or its exact book value per share (BVPS). There are indications that CTRM stock is trading too much above its BVPS now. Over time, the stock will float much closer to its BVPS.
Determining the value of CTRM
The company filed a Registration Statement and F-3 Prospectus with the SEC on January 26 stating that it was raising $700 million in equity and debt capital. He said on Jan. 25 that he had 509.262 million shares outstanding. But he has not yet specified how much of the $700 million in common stock or debt the company has raised.
An analyst with Looking for Alpha says that the the total was now closer to 710 million shares, after warrants which are now exercisable. But the problem with his analysis is that he doesn’t know or state how he feels about the amount of cash the company currently has. The F-3 filing indicated that he had $38.1 million as of September 30, 2020.
But at the time, the company owned six ships. As of March 19, he has bought eight, so it has 14 ships, on a fully livery basis. However, we don’t know exactly how much money the company left after these purchases. That’s because we don’t know how much of the $700 million in common stock and debt the company has raised. And we don’t know the exact number of common shares currently outstanding. These are needed to calculate book value per share.
the Looking for Alpha The analyst argues that the BVPS is exactly 25 cents per share now. But he does not clearly show his calculations, including how much cash he thinks the company has raised and in what form of securities.
Potential BVPS calculations
For discussion purposes, assume Castor Maritime raised half of the $700 million in common stock at $1 per share. Let’s also assume that it paid $17 million on average for the eight new ships, or $136 million.
This would mean the company has about $252 million in cash and 14 ships worth about $238 million. But now it has 1,060 million shares outstanding (that’s 710 million plus 350 million shares issued). Therefore, his BVPS is now $490 million (before any debt) divided by 1,060 million shares or 46.2 cents per share.
As of September 30, the company said its total debt was $19 million. Therefore, the book value would be $471 million and its pro forma BVPS was 44.4 cents per share.
But what if the company simply borrowed half of the $136 million (or $68 million) and only raised $200 million in equity at $1.10 per share? This would give him 892 million shares outstanding, remaining cash of $170 million, ships worth $238 million – for total assets of $408 million. Since he now has $87 million in debt, his book value would be $321 million, but his BVPS would be 36 cents per share. This is less than in the previous scenario, even though the company raised equity at a higher price.
What to do with CTRM actions
So you can see that without more details, we won’t know the exact BVPS. But our scenarios lead us to believe it’s somewhere between 25 cents per share and maybe 45 cents per share.
Keep in mind that I could be wrong on a number of factors, including ship value, current debt, and current cash flow. But that’s how you estimate the value of a business. Take what you have and estimate.
Given that CTRM stock now trades at just under $1 per share, it is still at least three to four times its estimated book value. This implies that unless there are stellar profits from its shipping operations, the stock is likely to fall. I suspect the drop will be at least 50% from here just to get within range of his BVPS. So watch out below, stay away from this stock for now, at least until there is better information on its BVPS.
As of the date of publication, Mark R. Hake did not hold a long or short position in any of the securities mentioned in this article.
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