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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (30939)	5/13/2008 8:51:22 PM
From: E_K_S	Read Replies (1) \| Respond to of 78627

Hi Paul - I have owned DRYs since their IPO in 2005 (w/ my most recent buy in 12/07). It has made it to my top five position in the portfolio and I am even more bullish now since their acquisition of Ocean Rig. A recent posting from a knowledgeable poster on the Drys YAHOO message board: What sets DRYS apart from other Bulkers messages.finance.yahoo.com Each deep drilling rig generates the same income as about 15 dry bulk ships but the contract period is much longer (typically five years). These rigs are expensive ($800 million/unit) and take up to three years to build. Ocean Rig has two of these deep drilling rigs under contract ($637K/day) and has ordered two more rigs that are scheduled to be delivered 3qtr 2011. It's possible that these day rates could double by the end of 2011. There are only 9 of these new 5th generation ultra deep drilling Rigs available for delivery by 2011. DRYs will own four of them. PBR has recently announced two multi year lease contracts and stated they will need more as they develop their new oil/gas offshore oil fields. I am not that concerned about DRYs spot market bulk shipping strategy as with their move into the ultra deep drilling market, 40% of their revenues will come from their drillers division and about 60% from their dry bulk shipping division. They do carry a lot of debt and are leveraged but their generated cash flow is more than enough to cover their debt payments. I would like to see some of this debt be payed down in the next 36 months and have the company lock up longer term charters on more of the dry bulk shipping fleet. The CEO has reduced the size and age of the fleet and has begun to sign longer term lease deals. Based on the future cash flow from both the shipping and drilling divisions and a slight PE expansion for the drilling side, the stock is still 50% undervalued. The company reports earnings soon and the analysts expect $4.40/share for the Mar'08 quarter. Their current 2008 year estimate is $18.62/share or 5.25 PE. None of these estimates reflect the drilling rig revenue as the Ocean Rig acquisition has not closed (sometime in late June). Looking forward to 2010, it is possible with their drilling division the company could earn $30/share. With a slight PE expansion to 7 PE, this stock should still be a good value at $210/share. If it was not for the ultra deep drilling opportunities that four new rigs add to the cash flow, I would be taking more profits off the table at current levels. EKS