MCX ($9.60) <MC Shipping > by fishbo863

**blast_investor** Mon Dec 05, 2005 4:59 pm

MCX ($9.60) <MC Shipping > by fishbo863
10/17/2005 12:23:00 PM MCX ($9.60) <MC Shipping > by fishbo863 Rating 5.6 (13 users)

Description:

MC Shipping’s cash flow is about to explode higher over the next two years as the
majority of its contracts get re-priced to 100% higher market rates. With a strong
majority owner, selling at a 21% discount to its NAV, yielding a solid 3% dividend and
about to pump out free cash flow of per share of almost $6 a share in the next two
years, MCX is a fantastic buying
opportunity.

MCX Business Description

MC Shipping Inc. fully or partially owns a fleet of 16 vessels, including 10
liquefied petroleum gas (LPG) carriers, 4 container vessels, and 2 small
multipurpose/general cargo ships.

They contract short and long-term charter arrangements to hedge against the
volatility of the freight markets and to generate “high running yield on its equity.”
They also capitalize by buying and selling vessels when advantageous.

The Company's vessels are technically managed by V.Ships, the world’s largest
marine services Group.

3 options for employing vessels:

1) Time Charter: MC Shipping receives a fixed charterhire per on-hire day and is

responsible for meeting all the operating expenses
of the
vessels, such as crew costs, voyage expenses,
insurance, repairs
and maintenance.

2) Bareboat Charter: The company receives a fixed charter-hire per day for the
vessel and the charterer is responsible for all the costs associated with
the vessel's operation during the bareboat charter
period.

3) Voyage Charters: The vessel is contracted only for a voyage between two
ports: MC Shipping is paid for the tonnage
transported and
pays all voyage costs.

In early 2005, the Company re-focused its activities in the LPG sector. The
company sold its four container vessels in January, while retaining a 25.6% interest,
bought two very large gas carriers from Bergesen and 50% of another one from Shell in
April.

Renewals Upcoming

Five of the Company’s six small pressurized LPG vessels are due for renewal
between December 2005 and June 2006. The existing charter rates of these vessels are
significantly below current market rates.

The average contract rate of these ships coming up for renewal was around
$130,000-160,000 per month. The Average rates today are around $225,000-315,000 per
month.

Its large vessel contract is locked in until September 2006, but MCX is optimistic
they can renegotiate a lucrative contract at that time. Here are the vessels and
dates when they are open for new contracts.

Vessel Expected
Redelivery
Auteuil Jul-06
Cheltenham Dec-05
Coniston Jul-06
Deauville Feb-06
Longchamp Jun-06
Malvern Dec-07
La Forge Sep-06
Berge Kobe Apr-10
Berge Flanders Apr-10
Galileo Apr-09

As you can see from above, the ships which come for renewal first are the small
LPG tankers, and the VLGCs have the longest-running
contracts.

Valuation

Due to the bull market in ship rates, vessel values of the LPG ships have also
increased substantially and are currently as a whole in excess of book value. In June
2005, MCX’s fully-owned fleet was valued at approximately $167 million. This excludes
the minority and joint venture investments such as the 50% investment in the JV
with Petredec (m/v Galileo) and approximately 25% equity investment in the four "Maersk
B-type" containerships.

Cantor Fitzgerald estimates that the company’s net asset value is $12 a share, and
the company affirms their agreement with that
valuation.

Interestingly, a recent IPO, StealthGas (NASDAQ: GASS), has a valuation well in
excess of its NAV. GASS’ NAV is very similar to its book value since it just bought
all of its ships at the end of 2004. Its book value is $10.04 a share, indicating that
it trades at a 1.4 times net asset value. When including debt, MCX would trade at
$17 a share with a comparative valuation.

SHIPS

General Info—MC’s three ship types:

An LPG carrier (liquefied petroleum gas) is designed to carry petroleum gases used
primarily as low pollution fuels and as feedstock in the petrochemical and
fertiliser industries.

A containership is a vessel designed exclusively to carry containers.

A multipurpose seariver vessel is a small vessel capable of carrying general cargo
and/or bulk cargo both on rivers and at sea.

Dry Ships:

1) Ankara Type: Cellular gearless container vessel Built: August 1976
2) Bay Trader Type: Single-decker, gearless, sea-river type, boxshaped
Built: Oct 1980
3) Link Trader Type: Single-decker, gearless, sea-river, container carrier,
boxshaped Built: Dec 1980
4) Maersk Barcelona Type: Cellular gearless container vessel
Built: December 1975
5) Maersk Belawan Type: Cellular gearless container vessel
Built: August 1983
6) Maersk Brisbane Type: Cellular gearless container vessel
Built: April 1976
Gas Ships:
1) Auteuil Type: Fully pressurized LPG carrier; Built: Oct 1995
2) Berge Flanders Type: LPG; Built: July 1991
3) Berge Kobe Type: LPG; Built: March, 1987
4) Cheltenham Type: Fully pressurized LPG carrier; Built: Dec 1990
5) Coniston Type: Fully pressurized LPG carrier; Built: Jun 1991
6) Deauville Type: Fully pressurized LPG carrier; Built: aug 1995
7) Galileo Type: LPG; Built: 1982 / measured 1983
8) La Forge Type: LPG; Built: November 1981
9) Longchamp Type: Fully pressurized LPG carrier; Built: Dec 1990
10) Malvern Type: Fully pressurized LPG carrier; Built: Jan 1990

The company has no other ships on order.

MCX has a joint venture of 50% investment with Petredec (m/v Galileo) and
approximately a 25% equity investment in the four "Maersk B-type" containerships. Management
anticipates that the net results of the Joint Venture (JV) with Petredec return
into "the black" in the first quarter 2006.

IR Contact

The company is based in Bermuda, but headquartered in Monaco. The Company’s
largest shareholders are the Navalmar Group and V.Ships. Cantor Fitzgerald covers the
company with a Buy rating. The IR contact in the U.S. doesn’t work with them anymore so
to contact the company, you must contact them in
Monaco:

Investor Relations
Contact: Alexander Gorchakov (Monaco)
Phone: 011 377 92 05 10 03
Email: contact@mcshipping.com

Industry Dynamics

In 2004, charter rates increased substantially for the small pressurised LPG
sector. Management feels that market strength will remain strong for at least the next
twelve months. The Company owns six small fully pressurized LPG carriers. The market
for VLGC (very large gas carrier) was also quite strong in 2004. Remember that MCX’s
very large LPG carrier is fixed on a long-term charter until September 2006.

From GASS’ filings:

“The LPG sector is smaller than other shipping sectors. As of June 2005, the
worldwide fleet of LPG carriers had only 934 ships with the larger fleets in the sector
having approximately 20 to 25 vessels, and the largest fleet consisting of 47
vessels. We believe the relatively small number of LPG carriers in the world fleet coupled
with the increasing demand for LPG products will support the growth of our fleet
through acquisitions of second hand vessels and
newbuildings.”

An important point for LPG, which distinguishes it from LNG (Liquid Natural Gas)
is how easily deliverable LPG is. You do not need a developed infrastructure. This
makes it very easy to get ammonia from Africa and send it for use in the U.S. in
fertilizer.

Paradoxically, growing LNG demand and production is a positive for LPG and for
MCX. LPG is a by-product of LNG and increased production of LPG will mean more ships to
transport it.

There are 934 ships in the LPG industry as of June of 2005 and there are expected
to be an additional 129 ships new-building ships to be delivered from now until the
end of 2008. That 13% increase in the number of ships compares to an estimated 36%
total and 8% annualized increase, or 17.3 million tons, in worldwide LPG capacity in
2005-2007.

Offsetting that increase is the fact that 35% of the existing ship capacity in LPG
is over 20 years. Several industry analysts foresee a good portion of these ships
be sent to the scrap yard.

ECONOMIC (and real) LIFE OF VESSELS

As the current age profile of the world LPG tanker fleet suggests, these ships can
usefully trade until the age of 30 years and even
beyond.

Scrapping of tonnage has not historically contributed to significant reduction of
the fleet because seaborne gas transportation is a relatively new industry and the
vessels are designed to last over 30 years with proper maintenance. In addition,
technically complex vessels combined with stringent safety and operational requirements
have created a high barrier of entry and an excellent safety record. Thus, age alone
has not been a disqualifying factor. However, gas carriers have been faced with
increased requirements from regulatory bodies, port states and charterers alike.
Whereas 30 years used to be a fair economic life of a gas carrier, ships older than 20
years are now more frequently rejected by charterers and port authorities on account of
age. Consequently, for the future it is expected that forced scrapping will affect
the supply-side more significantly than it has in the
past.

Long Term Debt

Long term debt is 71% of total capital, or $83 million in debt.

Concentrated shareholder base

Navalmar owns 51.4%, and management and directors own 1.9%. This company is
essentially a holding company subsidiary for Navalmar. I estimate that the float on the
stock is a little over 3 million shares.

Earnings Estimates

Cantor Fitzgerald estimates that MCX will earn $1.97 in earnings for 2006 on sales
of $42.3 million and it will earn $2.47 in earnings on revenue of $46.2 million in
2007. Personally, I think those numbers are low as the company has tremendous
operating leverage with such a fixed cost business.

Summary

With a substantial free cash flow ahead of it, MCX will be rolling in money. With
a free cash yield of almost 30%, MCX represents tremendous value at current levels.
I expect MCX to trade to a valuation of 1.2 to NAV (still a discount to GASS’ 1.4
NAV), MCX will rise 50%. I expect this valuation change to happen in the next six
months as investors see the contracts it locks down and realize the safety of the
earnings for the next three years. The 3% dividend on top of a 50% rise should be just
the cherry on top.

Catalyst:

1) New LPG contract terms signed
2) Earnings explosion next year
3) Dividend increase or buyback
4) VLGC contract renewal next year

**dark** Mon Feb 27, 2006 9:33 pm

MCX
I have a few comments to share:

1. If you look at the sector, almost all marine shipping companies are cheap in terms of earnings and asset, and MCX is not the best in the group in this sense.

2. The article suggests that MCX will get much higher shipping rate after the current contracts expire. However, MCX has several kinds of ships. We can see from the article it has quite a few dry ships and the dry bulk shipping rate has been in depression for some time now. Although MCX could get higher rates for its LPG carrier, but probably not for its dry ships, and thus its earnings may not be as bright as suggested by the article in the sense it did not say a thing about dry bulk rate.

3. MCX is high leveraged and you could find similar values in other marine shipping companies with less debt. One example is OSG.