DAC stock surged 21% higher in after-hours trading on February 10, 2020.
Danaos Corporation (NYSE: DAC), one of the world’s largest independent owners of containerships, today reported unaudited results for the fourth quarter and the year ended December 31, 2019.
Highlights for the Fourth Quarter and Year Ended December 31, 2019:
- Adjusted net income of $38.0 million, or $2.01 per share, for the three months ended December 31, 2019 compared to $36.6 million, or $2.45 per share, for the three months ended December 31, 2018, an increase of 3.8%. Adjusted net income of $148.7 million, or $9.17 per share, for the year ended December 31, 2019 compared to $131.2 million, or $12.35 per share, for the year ended December 31, 2018, an increase of 13.3%.
- Operating revenues of $110.2 million for the three months ended December 31, 2019 compared to $115.6 million for the three months ended December 31, 2018, a decrease of 4.7%. Operating revenues of $447.2 million for the year ended December 31, 2019 compared to $458.7 million for the year ended December 31, 2018, a decrease of 2.5%.
- Adjusted EBITDA of $78.1 million for the three months ended December 31, 2019 compared to $80.2 million for the three months ended December 31, 2018, a decrease of 2.6%. Adjusted EBITDA of $310.6 million for the year ended December 31, 2019 compared to $317.8 million for the year ended December 31, 2018, a decrease of 2.3%.
- Total contracted operating revenues were $1.34 billion as of December 31, 2019, with charters extending through 2028 and remaining average contracted charter duration of 4.1 years, weighted by aggregate contracted charter hire.
- Charter coverage of 86% for the next 12 months based on current operating revenues and 68% in terms of contracted operating days.
- Agreed to acquire one 8,463 TEU container vessel in October 2019 due to be delivered to us between March and May 2020 and acquired one 8,626 TEU container vessel in January 2020. Both vessels have been fixed on 2 year charters and are expected to contribute $12 million to EBITDA on an annualized basis.
“We are pleased to report improved earnings for the year ended December 31, 2019. The Company’s adjusted net income of $148.7 million for 2019 increased by $17.5 million, or 13.3%, compared to adjusted net income of $131.2 million for 2018. This improvement was primarily the result of a $13.7 million decrease in total operating costs and a $15.1 million decrease in net finance expenses, partially offset by an $11.5 million decrease in operating revenues. Adjusted EBITDA for 2019 was $310.6 million, a slight decrease from $317.8 million for 2018.
“The container market, particularly for vessels larger than 5,500 TEU, strengthened throughout the course of 2019 as container volumes across all main trade lanes increased. Notwithstanding any near term headwinds related to the rapidly evolving situation in China, long term fundamentals remain intact, and the market will continue to rebalance itself through a combination of moderate trade growth, slowing fleet growth and a reduction in vessel speeds due to new and ongoing environmental initiatives. Estimates for world GDP and trade growth are in flux due to the uncertainty around the impacts of the spread of the coronavirus in China. The current drop in demand is being addressed by canceled sailings by liner companies. However, we expect this dynamic to be short term in nature and result in a demand surge when supply chains resume. In the meantime, work stoppages and slowdowns at shipyards in China will lead to delays in newbuilding deliveries, scrubber installations and dry-docking schedules.
“With respect to the new IMO 2020 sulphur limits that went into effect on January 1, 2020, the current price differential between high and low sulphur fuel oil continues to support the investment rationale for scrubbers. We have already completed the installation of scrubbers on four out of 11 vessels, and we will benefit from these scrubber installations through fixed premiums on charter rates for 3-4 year fixtures that enhance cash flows and contract coverage. We are well insulated from temporary market disruptions with high charter coverage of 86% in terms of operating revenues and 68% in terms of operating days over the next 12 months, which protects our strong cash flows.
“Danaos also is well-positioned to benefit from a rising market in the medium term. While our larger vessels remain on multi-year charters, with some charters extending through 2025, a large number of our small to mid-sized vessels will be coming off existing charters over the next two years, creating potential for incremental cash generation. Additionally, our successful equity offering in November of 2019 puts us in a strong position to opportunistically pursue growth initiatives and we have already acquired two 8,500 TEU container vessels since completing the offering. These vessels have both been fixed on two year charters and are expected to contribute an incremental $12 million of EBITDA on an annualized basis, ensuring an accretive return on our investment. Bank financing for these acquisitions has also been arranged.
“Danaos has consistently remained committed to investing in operational excellence and technological innovation, which allows us to be forerunners in preparing for environmental requirements that will shape our industry in the coming decade. Our commitment has enabled us to maintain our leadership position in the container shipping industry throughout multiple market cycles. These are the attributes that will enhance shareholder value far and above the steel value of our fleet.”
On December 3, 2019, Jefferies analyst Randy Giveans upgraded Danaos to Buy from Hold with a price target of $9. Randy says that Danaos recently completed a secondary offering of 9M shares, which removes an overhang. He believes the shares are undervalued and should soon reflect the company’s strong balance sheet, substantial charter backlog, and likely dividend payment in 2020.