Wednesday, September 5, 2012

Why I Own GLBS

In my August "Why I Own SEB" post I mentioned Warren Buffett's claim of riches in small caps. Last week, I decided to test his claim by opening a new position in Globus Maritime (GLBS). GLBS is actually a microcap shipping company. As I will explain, I feel GLBS is very undervalued and I hope to double or triple my money in a few years. I bought GLBS as a long term value investment. Having said this, I want to warn the reader that microcap stocks often have limited coverage in the media and can be subject to fraud and/or manipulation. We all should be extra vigilant when dabbling in microcaps. Furthermore, the information in this blog should never be the basis anyone's investments. The reader should do his own research and/or consult a professional for investment advice before buying GLBS.

GLBS is a operator and owner of large dry bulk ships. GLBS started operation in 2006. It is tiny company with a market cap of $26M right now, and they own 7 ships. Their offices are in Greece but their ships are registered in other countries and they trade on NASDAQ. I found GLBS while doing using a screener for small-cap low P/E and high book value companies. In my screener, apparently more than half of the qualifiers are Chinese companies. I dismissed them because I perceive a lack of transparency and rule of law in mainland China. Then I saw GLBS. And the more I looked at GLBS the more I liked it. The first thing I notice about GLBS is the fantastic valuation metrics:
  •  price to tangible book value: 0.20 
  •  P/E: 4
  •  dividend yield: 13% 
  •  dividend policy is to pay out at least 50% of net income. 
The stock is at $2.60 / shr now but it has been as high as $12 in the last two years.

My next thought is what's the catch? I looked at most of their past financials -- which is easy considering they existed only 6 years. They were founded in 2006 with $40M seed money. They went IPO in what is called the Alternative Investment Market (AIM) in London in 2007. The IPO raised $50M which they used to purchase ships. Then they moved to the NASDAQ in 2010, without raising new cash. I don't know why they moved from London to USA but right now I am not too concerned by that fact. The have always maintained a fleet of around 7 ships. The following shows the earnings and some other key financial figures. All numbers are in millions USD.

2011 2010 2009 2008 2007
Income 6.96.0 -10.142.812.0
Assets 256 218 188284286
Liabilities 116100 65163189
Equity140 118 11312297

The numbers show good earnings performance in a challenging economic environment. They have grown their equity. And they have paid dividends.

A peculiar reason I like GLBS is the fact that its office is in Greece. Being in Greece would certainly depress the stock price, but it is actually immaterial to the company operations. GLBS has customers are worldwide. So this is a mispricing by the market where I can take advantage.

Another reason I like GLBS is that it is majority owned by the board chair George Feidakis. This means that the board is motivated to keep an eye out for any improprieties; the board chair has his skin in the game.
I also like the documentation on GLBS. For such a small company investors must rely on management to be transparent and forthright, and that is the case for GLBS. Their website show all their financials going back to when they formed. Their reports are all very direct and easy to understand. For example I read a clear one page summary explaining their losses for 2009. It was due to a $20M impairment writeoff as they lowered cash flows projections of two of their ships going into a recession.

The downside to GLBS is that it is in a pitiful industry. The industry currently has a glut of ships which are depressing rates. The Baltic Dry Index has been at the lows of the 2008-2009 recession. I worry if GLBS can stay profitable this year. So far in the quarter ending in March, they earned $1.7M, which is actually on track for a good year. If the rest of the year deteriorates to breakeven I would still be satisfied. But if they have a loss I would have to revisit my decision to hold GLBS.

GLBS reports 2nd quarter earnings on Monday Sept 10. I'll be watching that closely. If there is any significant news I will post.

Disclosure: I just started buying GLBS last week and may continue to add to my position in the next few days.


  1. Our paths cross once again....

    I have started to "check out' the shipping industry, esp. the dry bulk shippers.

    These stocks look beaten down to me, and a potential good source of investment candidates. I think SEB will be making some moves here.

    I think that a buying opportunity might come about towards the end of the year as investors look to exit their losing investments for tax purposes. I was buying banks heavily in December & November of last year for this purpose. In retrospect, I should have done even more than what I was doing.

    It looks like GLBS reported bad earnings and eliminated the dividend. The price has also gone down significantly. Does this alter your investment theory?

    I enjoy your blog keep up the good work.

  2. hey welcome back!

    Ya I got into GLBS expecting a bad year. The recent quarter earnings is well within my expectation range so I didn't change my thesis, and I actually added 50% to my holdings after the earnings.

    thanks for coming and come back more often!