David Marcus presented his in-depth investment thesis on dry bulk shippers at European Investing Summit 2017, focusing on four companies: Scorpio Bulkers (NYSE: SALT), Safe Bulkers (NYSE: SB), Navios Maritime Partners (NYSE: NMM), and Songa Bulk (Oslo: SBULK).

Dry Bulk Shippers: The low-hanging “easy money” has already been made. However, dry bulk names are coming off an extremely low base. David has higher conviction today than when his firm started investing in the space in light of the lower risk profile today: (i) secondhand asset values and charter rates (spot and one-year time charters) have both increased; (ii) the new vessel order book is historically low; and (iii) there is supply visibility. David also sees improvement in structural demand. Despite fears of China slowing down, dry bulk demand has been growing steadily. Demand growth is underpinned by domestic Chinese stimulus (One Road and One Belt) and regulatory policies that favor low-cost suppliers of high‐quality iron ore and coal. Australian and Brazilian iron ore exporters still have cost advantage over Chinese producers. Longer ton miles bode well for dry bulk. In general, management insiders have been recent buyers of dry bulk shippers’ shares.

Scorpio Bulkers: Founded in March 2013, Scorpio owns and operates modern mid‐ to large‐size dry bulk vessels (Kamsarmax and Ultramax). The company is incorporated in the Marshall Islands, headquartered in Monaco, and also based in New York. Management has attempted to replicate with dry bulk its past successes in tankers and LNG. The company was making vessel acquisitions into a worsening dry bulk market, leading to covenant breaches. Scorpio has one of youngest fleets of fuel efficient, mid‐size vessels. All vessels are eco‐design (20% higher efficiency, lower bunker consumption, and high cargo intake). The company has a strong, proven management team, led by chairman and CEO Emanuele Lauro and president Robert Bugbee. A March 2016 equity raise, in which David’s firm participated, provided a two‐year liquidity runway to weather the downturn. Bleak sentiment has led investors to overlook Scorpio’s balance sheet strength. Evermore also participated in a June 2016 equity raise at $3.05 per share alongside management. Proceeds were used to take advantage of compelling secondhand vessels coming to the market from distressed sellers, and extend liquidity to 2020 (more as a preemptive measure vs reaction to market direction).

In the session, David also commented extensively on three other companies owned by his firm, Safe Bulkers (NYSE: SB), Navios Maritime Partners (NYSE: NMM), and Songa Bulk (Oslo: SBULK). In response to a question, David also briefly discussed his positive view on John Fredriksen’s Frontline (NYSE: FRO).

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About the instructor:

David Marcus has more than 20 years of experience in the investment management business. He began his career at Mutual Series Funds, mentored by renowned value investor Michael Price, and rose to manage the Mutual European Fund and co-manage the Mutual Shares and Mutual Discovery Funds. He also served as director of European Investments for Franklin Mutual Advisors, LLC. After leaving Franklin Mutual, David founded Marcstone Capital Management, LP, a long-short Europe-focused equity manager, largely funded by Swedish financier Jan Stenbeck. When Mr. Stenbeck passed away in 2002, David closed Marcstone and then co-founded a family office for the Stenbeck family; as an advisor to the family, he advised on the restructuring of a number of the public and private companies the family controlled. He later founded and served as managing partner of MarCap Investors LP, the investment manager of a European small cap special situations fund, which he managed from 2004 to 2009.

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