Diana Pitch

8/7/2019 Diana Pitch

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1

Duke Investment Club

(NYSE: DSX)

By Rami Ali, Donna Budman, Sarah Dong, WilliamRhem, Mark Soryano, Max Tabachnik, Rebecca

Versteeg, and Chris Whittaker


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Presentation Outline

Thesis

Company Overview

I

ndustry/Market Analysis Competitive Advantage

Valuation

SWOT Analysis

Risks

Conclusion


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Investment Thesis

Recommendation: BUY

Price Target: $18.16 (33% upside) Current Price: $13.60

Shipping industry strength Growth from global economic recovery

and demand for dry commodities

Competitive advantage within industry Strong client base, management, and

exposure to Australian businesses Valuation

Undervalued based on growth estimatesand financial performance


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Company Overview

Company Summary

Day's Range 13.13-13.35

52wk Range 10.75-17.9

Volume 472,713

Avg Vol (3m) 721,791

Market Cap 1.06B

P/E (ttm) 8.93

EPS (ttm) 1.47

Beta 1.68

Diana Shipping Inc. (NYSE:DSX) owns andoperates 18 dry bulk shipping vessels with acapacity of over 2 million deadweight tons

Founded in 1972 by Simeon Palios, a navalarchitect and engineer

Charters vessels to companies for periods oftwo to five years for fixed daily fee

Diana's fleet is one of the newest in the world;over nine years younger than the averagemerchant fleet

Diana Containerships Inc: $50 million

investment in company formed for investing incontainerships; representing approximately55% of shares outstanding


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Company Overview

Vessel details: VLOC (2 under construction), Capesize (7), Post-Panamax (1),Panamax (14)

Revenue Driver: Baltic Dry Index (BDI)- daily average of charter rates

In-house technical and commercial management; efficient use of sister ships Dividends postponed in 2008 to invest in new ships at depressed prices

Contributed to steep fall in stock price China to create five billion Euro fund forGreek shippers building ships in China


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Industry/Market Analysis

Maritime Transportation crucial tomovement of raw materials, accountingfor 5% of total world trade

Steady growth in past months, outgrowingS&P 500 (8.05% increase in past year)

Greek ships account for 18.1% of globalmarket share for dry bulk (WSJ)

Current trend in increasing demand forraw materials

Chinese demand for seaborne shipping ofdry commodities

Baltic Dry Index (BDI) at historic lows(dropped 90% from 2008 to 2009); high

upside potential with economic recovery Expansion: Diana Containerships

subsidiary to ship finished goods

BDI: 2010 YTD


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Competitive Advantage

Modern, high quality fleet of dry bulk carriers reduces operating costs, improves safety

Strong balance sheet, low debt Easy access to new ships and financing from large

global banks

Experienced management team

Led by Simeon Palios, a qualified navalarchitect and engineer who has 42 year ofexperience in the shipping industry.

Strong relationship with largest mining andagriculture clients

Largest clients include BHP Billiton, Cargill,Hanjin Shipping Co. (60% of revenues in2009)

A surge of Australian Wheat Ending March 31, wheat production will jump

to 25.1 million metric tons (16% rise from2009-10 production, 36% jump from a five-year annual average)

90% of wheat is exported, strong demand


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Valuation: Comparables Analysis

Implied P/E Multiples Consensus Growth Estimate (%)

4.63 5.63 6.63 7.63 8.631.51 6.99 8.50 10.01 11.52 13.03

Peer Median 1.61 7.45 9.06 10.67 12.28 13.89PEG ratio 1.71 7.92 9.63 11.34 13.05 14.76

1.81 8.38 10.19 12.00 13.81 15.621.91 8.84 10.75 12.66 14.57 16.48

Price Target (1 yr) 1 8 . 1 6Current Price 1 3 . 6 0Annual Return 3 3 . 5 %

Hi gh e r gr o w t h r a t e ( 6 . 6 3 % )Lo w e r Be t a t h a n pe e r s ( 1 . 7 0 )St ron ger M arg ins

As o f 1 1/1 5/2 01 0 clo sin g price s M ar ke t C apita liza tio n ($m il) E nte rprise Va lu e / C on se nsu s 5 yr e xpe cte dE quity E nterprise E BITDA M ultiples (x) P /E M ultiples (x) growth P /E to growth: ROE

Comparable companies Pric

$

AP V l

TT

TT

imate(%) "PEG" rat io TT

Alexander & Baldwin, Inc (A

EX) 36.12 1,490 1,980 10.27 9.38 8.57 20.00 17.45 9.50% 1.71 3.49%

Dry

ips, Inc. (DRY

) 5.39 1,590 4,160 7.94 7.53 7.13 37.96 5.44 5.50% 1.23 1.94%

Navios Marit ime Partners LP (NMM) 18.87 936 1,160 12.48 12.01 11.51 13.66 15.10 4.33% 3.07 20.56%

Eagle Bulk Shipping, Inc. (EGLE) 5.61 349 1,350 12.28 12.06 11.85 19.08 18.1 1.77% 7.68 2.92%Genco Shipping & Trading Ltd. (GNK) 16.49 561 2,010 6.42 6.19 5.95 3.82 5.89 4.00% 1.02 14.50%

Diana Shipping (DSX) 13.60 1,100 1,120 6.71 6.29 5.90 9.23 8.83 6.63% 1.33 11.65%

Peer Mean 16.50 985 2,132 9.88 9.43 9.00 18.90 12.40 5.02% 2.94 8.68%

Peer Median 16.49 936 1,980 10.27 9.38 8.57 19.08 15.10 4.33% 1.71 3.49%

*Source:Yahoo Finance


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SWOT Analysis

STRENGTHS

- Undervalued with a potential forprice increase

- Low debt and strong balancesheet

- Recent investments in the form offixed costs

STRENGTHS

- Undervalued with a potential forprice increase

- Low debt and strong balancesheet

- Recent investments in the form offixed costs

WEAKNESSES

- Currently offers no dividend- Industry specific risks- 60% of revenue comes from 3charterers- Investment losses from FFAs

WEAKNESSES

- Currently offers no dividend- Industry specific risks- 60% of revenue comes from 3charterers- Investment losses from FFAs

OPPORTUNITIES

- High wheat yield in Australia

- Increased global demand linked toeconomic recovery

- Expected increase in demand fordry commodities

OPPORTUNITIES

- High wheat yield in Australia

- Increased global demand linked toeconomic recovery

- Expected increase in demand fordry commodities

THREATS

- of 1.7 in slow economicrecovery

- Oversaturation of market

- Volatility of BDI market

- Economic environment in China

THREATS

- of 1.7 in slow economicrecovery

- Oversaturation of market

- Volatility of BDI market

- Economic environment in China

SWOTSWOT


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Conclusion

Recommendation: BUY

Price Target: $18.16 (33% upside)

Current price does not fully account for

strong expected growth, high margins,and ROE

DSX has stronger client base inAustralia and Asia, can take advantageof higher demand for commodities

DSX also carries significant upside with

economic recovery and increase inglobal trade


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Valuation Appendix: EPSSensitivity

2010E Implied Prices Peer Mean P/E Multiples

16.90 17.90 18.90 19.90 20.90

1.39 23.50 24.89 26.28 27.67 29.06

Consensus 1.49 25.19 26.68 28.17 29.66 31.15

EPS 1.59 26.88 28.47 30.06 31.65 33.241.69 28.57 30.26 31.95 33.64 35.33

1.79 30.26 32.05 33.84 35.63 37.42

2011E Implied Prices Peer Mean P/E Multiples

10.40 11.40 12.40 13.40 14.40

1.34 22.65 23.99 25.33 26.67 28.01

Consensus 1.44 24.34 25.78 27.22 28.66 30.10EPS 1.54 26.03 27.57 29.11 30.65 32.19

1.64 27.72 29.36 31.00 32.64 34.28

1.74 29.41 31.15 32.89 34.63 36.37

Diana Pitch

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