Dryships Up 4% on Rumors of Strategic Initiative

Shares of dry bulk shipper Dryships (DRYS) are up 23 cents, or almost 4%, at $6.52 following chatter the company has engaged bankers to explore strategic alternatives, as they say.

That follows rumors in early March that the company was an acquisition target for Danish conglomerate AP Moeller-Maersk A/S, rumors that quickly faded.

I spoke with Oppenheimer & Co. analyst Scott Burk, who says a sale of assets, rather than an outright sale of the company, makes some sense. (Mind you, neither he nor I have any idea what’s behind the latest rumors, whether an asset sale is actually on the table, or whether something else is being considered.)

If they were to sell their drilling business to another entity, that would be consistent with their forward plan. Perhaps instead of an IPO.

“Exploring strategic alternatives would include asset sales, so that absolutely makes sense,” Burk said in a phone interview. The company has been talking for a year about doing an IPO for its offshore drilling business, to separate that unit from the dry bulk shipping operations. “The drilling biz is selling at a very low multiple, less than six times Ebitda,” observes Burk. “They’ve said they want to wait until they could get a better valuation for that business,” before doing an IPO.

Selling the company seems unlikely if only because chairman, president and CEO George Economou has another business, Cardiff, which brings in fees and commissions for contracting out the Dryships fleet. So selling Dryships could result in Economou losing that extra income from the middle-man business, Burk argues.

Burk has a “Perform” rating on Dryships, equivalent to a “Neutral,” and says the price of around $6 to $7 at the moment is fair. He observes that Dryships trades below the average multiple for the bulk shipping sector, at 6.2 times as a multiple of enterprise value to Ebitda, compared to 7.8 for the industry, on average. At the same time, the drilling business brings down the whole company multiple, because drillers trade at just 5.3 times, on average.

So the current multiple is probably appropriate for the stock on a blended basis, in his view.