EXM

[stout7735]

I held instead...

[stout7735]

I sold today...Thank you very much....

[David Randolph]

EXM has been trading between the $24.5 support and the 50 days SMA:

[David Randolph]

Fundamental Case:

EXM's takeover of QMAR was finally closed, after a lot of uncertainty due to the credit crisis. The market loved the news and QMAR is now the largest shipping company trading in the US exchanges:

What EXM Receives From Transaction: With the acquisition of QMAR, EXM becomes the
largest US-listed, dry-bulk shipping company by dead-weight tonnage (DWT) as it increased its
current carrying capacity from roughly 1.0 billion DWT (18 vessels) to over 3.7 billion DWT (47
vessels).
(I now have this tendency of going for the leader, the biggest - after seeing that they held much better in the market downturn, despite, most of the times, being more "overvalued". I have to be able to change my beliefs to keep learning and improving)

Here's a full analysis from, for example, Dahlman Rose & Co.:

Excel Maritime
Quintana Shareholders Approve Merger;
New Asset Mix Transforms Company

►Quintana Maritime shareholders approved the proposed merger with Excel Maritime yesterday. Each QMAR share is set to receive $13 in cash and 0.4084 EXM shares, although the final stock portion will be adjusted for QMAR's 0.31/share dividend paid this past March. The deal is expected to close today.

►Excel also announced that its $1.0 billion term loan and $400 million revolving credit facility, lead arranged by Nordea, have been successfully syndicated. Over 60% of the financing package has been committed by the arrangers, which was the minimum requirement for the deal to be approved. The loan bears interest at LIBOR plus 1.25%. We believe Quintana's young asset mix with long term contracts in place was instrumental in securing this new financing package.

►This transaction is transformative for Excel, as its fleet is set to grow from 18 vessels to 48 plus Quintana's joint venture interests in 7 Capesizes under construction. The average age of its fleet is also dramatically reduced, from over 13 years on average down to just 6 years. Visibility is also greatly enhanced as 72% and 53% of its 2008 and 2009 operating days are under contract respectively compared to 57% and 18% prior to the deal. We believe the extended visibility and younger fleet will allow Excel to garner a higher premium than it received prior to Quintana.

►Although the acquisition is dilutive near-term as Excel shares were valued at 3xEBITDA compared to Quintana's take-out valuation of 8x, 2010+ CFs are set to increase significantly. We now project Excel to generate $8.17/share, 6.85/share, $6.99/share and $9.04/share from 2008 to 2011 compared to our prior forecasts of $8.81/share, $8.17/share, $6.80/share and $6.99/share.
(I find it interesting that people inside the industry are willing to pay 8xEBITDA and the market just values at 3xEBITDA)

►We believe Excel shares are attractive as we assess the company's new net asset value at $38/share—nearly 34% higher than its current share price. Excel will be levered at just 45% post-transaction which should give the Board flexibility in boosting its dividend payout. Excel's $0.80/share annual payout represents just 10% of our CF estimates during the next two years. As such we believe there is considerable room for the dividend to grow and for further vessel acquisitions. On a CF basis, Excel shares are yielding a quite high 28.5% and 23.9% respectively for 2008 and 2009.

►Overall, we find the addition of Quintana's modern fleet of Capesizes and Panamaxes and key members of its management team highly favorable. Quintana CEO Stamatis Molaris, who has a strong presence with US investors, is set to takeover the CEO role for Excel. We reiterate our Buy rating and $50 target, which we arrive at by targeting 7x2009 CF.

Technical Case:

EXM closed above the 50 days SMA for the first time in 6 months, and did it with a bang, up 20% on volume of 3.8 million shares:



There's some minor resistance at $39, but I think this bullish move will take shares to the $50 zone, since that is the midpoint of most analysts calls (some of them have price targets in the $70 area).

Risk is that EXM falls back down below the 50 days SMA, currently at $31.27. That would be my stop. So I see about 43% profit potential and about 11% loss potential. I'll take it.

EXM trading plan:

Buy EXM at the open. Take profits at $50. Sell with a small loss if the stock is set to close below $31.27.

[David Randolph]

EXM opened with a gap up and some people took profits, but they weren't strong enough to fill the gap at $35.45. Volume remained exceptionally high.

I say that if EXM is able to close above $39 it clears the way for a move towards $50. I think that's what will ultimately happen.

EXM trading plan:

Take profits at $50. Sell with a small loss if the stock is set to close below $31.40.

[David Randolph]

I say that if EXM is able to close above $39 it clears the way for a move towards $50. I think that's what will ultimately happen.

EXM made it, it closed above the $39 resistance level. Volume remained exceptionally high. I guess this is because EXM is now the largest US listed dry bulk shipping company (by capacity, not market cap).

The way is clear for a move towards $50 ...

EXM trading plan:

Take profits at $50. Sell with a small loss if the stock is set to close below $31.57.

[David Randolph]

EXM trading plan:

Take profits at $50. Sell with a small loss if the stock is set to close below $31.75.

[David Randolph]

I'm going to raise the bar a bit on EXM and make sure (well, that's impossible, because the stock can always gap down) that I lock in at least a small profit.

EXM trading plan:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

EXM trading plan:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

EXM is still trading at a discount versus its peers ...



... and analysts really love the merger with QMAR now that it was consummated.

I see $50 as almost a sure thing and wonder if I shouldn't let the profits run some more on EXM.

For now the trading plan remains:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

For now the trading plan remains:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

Hmm, I see now that EXM was downgraded from buy to hold by Canton Fitzgerald, on Monday, essentially because it reached the firm's price target of $43 (see complete research attached below). 

However, there are several other firms with much higher price targets, like for example, Jefferies & Co, with a $67 price target (see complete research attached below).

So I figure people used Cantor's downgrade as an excuse to take profits down to the $39 support level. I expect EXM to hold that level, but if it doesn't ...

Trading plan:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

Trading plan:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

EXM did what it had to do, that is, trigger the stops below the $39 support level. But in the end it closed above $40, so the stock respected the support. This type of behavior is the reason why I use "stops on close" and not in an intraday basis: one risks a bit more, but also avoids being thrown out of board by short term, intraday noise.

I'm quite confident EXM will have a strong upside day tomorrow ...

Trading plan:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.

[David Randolph]

I'm quite confident EXM will have a strong upside day tomorrow ...

Up 7.6%, I think it qualifies as a "strong upside day".

Trading plan:

Take profits at $50. Sell with a small profit if the stock is set to close below $39.