Castor Maritime Inc. (CTRM) is a small company that indulges in global shipping transportation services via its own vessels. It was founded in 2016 and the business is specialized in shipping dry bulk goods. The company announced its fourth-quarter 2020 results on March 30 reporting a net loss of $0.8 million for the three months ended December 31, 2020. During mid-February, CTRM hyped and short interest increased. The total number of shares sold short as a proportion of total shares outstanding is known as short interest. The ratio is calculated by dividing the total number of shares sold short by the average daily trading volume of the stock. The outstanding shares increased by 440% in its first quarter.
Before the short-squeeze event, the trading volume of CTRM stock was between 4 million and 10 million. However, the CEO, Petros Panagiotidis, said:
“Recent increases in the share price are significantly inconsistent with any improvements in actual or expected business prospects, operating performance, financial condition or other traditional measures of value, including our loss per share of $0.03 for the year ended December 31, 2020.”
The company has reported $4.4 million in revenue, a 57% period to period increase. The shipping industry was already hit by the trade dispute between the U.S and China in 2019. The global pandemic has worsened the global trade situation as the countries closed their borders for several months to control the infection rate. As a result, the company has recorded a net loss of $0.8 million for three months ended in December 2020 because some vessels that were up for charter renewal in 2020 were employed at significantly lower charter rates than those achieved in 2019. The operating and administrative expenses increased leading to a 73% period to period decrease in EBITDA. The loss per share was $0.01 as compared to $0.2 earnings per share in the fourth quarter of 2019. Cash and restricted cash were $9.4 million, an 84% period to period increase. Castor Maritime owned six vessels by the end of 2020, doubling its fleet size. The company is yet to add another eight vessels in 2021 increasing its fleet size to 14 vessels.
The company recently entered into an agreement with certain unaffiliated institutional investors offering 137,000,000 common shares. It received approximately $26.0 million of gross proceeds through this offering. It has also entered a $15.3 million term loan facility with a tenor of four years to fund its capital expenditures. The company has already acquired five of its eight vessels from unaffiliated third-party sellers increasing its fleet size by 83%. The company has acquired Japanese-built Capesize and Kamsarmax dry bulk carriers, and Korean-built Kamsarmax dry bulk carriers, and Aframax LR2 tankers. The delivery of some of the vessels is expected to happen in the second quarter. The company has funded its vessel acquisition from the proceeds of January equity offerings.
Dry Bulk Shipping: Industry Outlook 2021
The pandemic has a far worse effect on the shipping industry than any other industry due to mandatory containment measures and quarantine restrictions and it is still causing turbulence in the shipping industry. Despite signs of recovery in the dry bulk charter market from the low rates seen in the first half of 2020, the tanker charter market remains stagnant. According to a Moody’s report published on December 11, 2020, the global shipping industry will perform better this year.
In this report, Moody’s wrote:
“We expect the aggregate EBITDA of the shipping companies we rate globally to grow by 3%-5% in 2021, driven by a recovery in the dry bulk segment from pandemic lows and the continuance of good market fundamentals for container shipping. However, this is tempered by a likely decline in EBITDA in the tanker segment next year because of tough comparisons with record charter rates in the first half of 2020. The industry’s overall supply-demand balance is set to improve in 2021.”
Castor Maritime managed to improve its revenue in 2020 but an increase in operating expenses and lower vessel rates drained its profitability. However, the company entered into an agreement in January to expand its fleet size which now consists of 11 vessels, and 3 more vessels are yet to be delivered. The long-term impact of COVID-19 on the shipping industry remains unclear. 2020 was a challenging year for every industry except for the e-commerce and online entertainment industry. The economy is, however, progressing at a great speed with the roll-out of the vaccine but some countries are still struggling to control the infection rate, so containment measures are still in place. Even if the shipping industry is to recover in 2021, Castor might not be the best company to bet on given its unproven business model.
Disclosure: The author does not own any shares mentioned in this article.
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