DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON
TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. U.S. Disclosure:
Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be
aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this
report as only a single factor in making their investment decision.
27 October 2009
Better Than Expected
■ DRYS reported Q3 EPS of $0.27 (excluding non-cash interest rate
swaps of -$0.15) beating our estimate of $0.24 (we were high on the
street) and well ahead of consensus at $0.20. The earnings beat was
driven by upside surprise to revenue. Net revenue came in better than
expected at $222.5 million (CS $213.4 million) and was up 9% Q-Q, but
down 30% Y-Y. EBIT was $94.0 million (CS $86.3 million) and EBIT margins
were 41% (compared to 38% last quarter and 68% in Q308).
■ Balance Sheet Continues To Improve. We estimate DRYS net debt to
capital at ~35% (down 130 bps Q-Q). DRYS has ~$670 million in cash ($378
million restricted) and $2.46 billion in debt. DRYS has ~$290 million in
unrestricted cash that could be used for growth and we expect DRYS to
generate ~$500 million in free cash flow in 2010 (2010 FCF yield ~24%).
■ Rig business reported a solid Q3 – Outlook is positive. Revenue from
DRYS two drill rigs was $107.6 million (up 4% Q-Q).The revenue increase
was driven by improved utilization for the rigs. Looking ahead to Q4 we
expect 3%-4% revenue growth Q-Q on the drill rig fleet as the Leiv Eiriksson
is deployed on a new contract at a rate 12% higher than its currently earning.
■ Dry Bulk Outlook a little more cloudy. While dry bulk rates surprised to
the upside in Q3 and we expect further upside surprise in Q4 the outlook for
2010 remains challenging. However, DRYS is well