Golden Ocean: Impaired Financial Results And Decreasing Rates

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Mentioning Golden Ocean's (NASDAQ:GOGL) modern fleet and progressive chartering strategy, Golden Ocean's CEO said that nan institution delivered different beardown consequence successful 4Q 2022. However, nan institution reported impaired fourth-quarter results compared to nan erstwhile quarters. GOGL's EPS decreased from $0.52 successful 3Q 2022 to $0.34 successful 4Q 2022 and its dividend per stock decreased from $0.35 successful 3Q 2022 to $0.20 successful 4Q 2022. Despite nan affirmative effects that tin beryllium expected from nan reopening of China, nan antagonistic effects of nan world recession and tight monetary policies connected nan barren bulk shipping marketplace are continuing. I expect GOGL's 1Q 2023 quarterly results to beryllium moreover weaker than its 4th fourth results. The banal is simply a sell.

Quarterly results

In its 4Q 2022 financial results, Golden Ocean's nett revenues (operating revenues minus voyage expense) of $180 million, compared pinch 3Q 2022 nett revenues of 196 million. The company's nett income decreased from $105 cardinal successful 3Q 2022 to $68 cardinal successful 4Q 2022. Golden Ocean reported fourth-quarter adjusted EBITDA of $112 million, compared to $118 cardinal successful 3Q 2022. The company's fourth-quarter financial consequence shows a important impairment compared to nan erstwhile quarter. It is worthy noting that GOGL's full-year 2022 financial results are besides weaker than its full-year 2021 results. One awesome logic down nan company's weakening results successful 2022 was nan decreased freight rates. GOGL's TCE per time dropped from 27582 successful full-year 2021 to 24262 successful full-year 2022. The company's TCE per time decreased from 23017 successful 3Q 2022 to 20421 successful 4Q 2022. For nan first 4th of 2023, GOGL estimates a TCE per time of $13150 for 63% of Capesize days and a TCE per time of $14900 for 73% of Panamax days. For nan 2nd 4th of 2023, GOGL estimates a TCE per time of $21100 for 19% of Capesize days and $17900 for 14% of Panamax days.

The marketplace outlook

"Inflation remains rather elevated, and truthful much needs to beryllium done," Fed Governor Christopher Waller said. On 2 February 2022, nan Federal Reserve increased its cardinal complaint by 0.25 percent constituent to 4.50% (it was nan eighth complaint hike since nan Fed started expanding nan national costs complaint a twelvemonth agone to combat inflation). The liking rates successful nan United States are now astatine their highest levels wrong nan past 15 years. For ostentation to meet nan Federal Reserve's 2% goal, it is probable that nan Fed summation its costs complaint to 5.25% - 5.50% successful 2023. Goldman Sachs and Bank of America expect nan Fed to raise liking rates 3 much times successful 2023.

Due to nan cardinal banks' measures to combat ostentation successful Major economies and nan continuing warfare successful Ukraine, which weighs connected economical activities, nan contributions of nan United States and European countries to world economical maturation are not important successful 2023. On nan different hand, nan reopening of China tin support world economical growth. According to IMF, China is expected to person a 5.2% existent GDP maturation successful 2023, compared pinch 3.0% successful 2022. Figure 1 shows that successful 2023, driven by China's forecasted growth, Asia contributes importantly to world economical growth.

Figure 1 - Asia's publication to nan world economical growth

IMF

The Baltic Dry Index skyrocketed successful nan first 9 months of 2021. It slashed aft its important jumps, and now, nan Index is adjacent to its levels successful May 2020. Year-to-date, nan Index is down 49%. However, it is worthy noting that successful nan past fewer days, nan Baltic Dry Index surged arsenic request crossed each alloy segments increased.

As nan wintertime play ends, much affirmative effects connected barren bulk shipping activities and barren bulk commodities request tin beryllium expected from nan reopening of China successful nan adjacent fewer months. However, I expect nan affirmative effect of China's reopening connected nan barren bulk marketplace to beryllium offset by nan antagonistic effects of nan thigh monetary policies successful different awesome economies. Moreover, it is important to cognize that according to MSI, nan barren bulk shipping capacity is expected to summation by 20 cardinal dwt successful 2023, implying that GOGL's fleet utilization successful 2023 will beryllium little than successful 2022. MSI expects 2023 mean freight rates to beryllium 25% to 30% little than 2022 mean freight rates.

Figure 2 - The Baltic Dry Index

tradingeconomics.com

GOGL capacity outlook

I looked astatine Golden Ocean's profitability and liquidity ratios successful this thorough article to measure really good nan institution tin move a profit and usage its assets to make money for its investors. I person examined nan profitability ratios for separator and return ratios to supply useful insights into nan financial wellness of nan company. I calculated nan ratios successful comparison to earlier quarters to beryllium much helpful.

In general, separator ratios measure nan expertise of nan institution to move revenues into profits successful a number of ways. Overall, owed to nan shortcomings of nan barren bulk marketplace successful 2022, this shipping institution had weaker gross profit, EBITDA, and nett profit margins compared pinch nan extremity of 2021. In minutiae, nan full gross of Golden Ocean declined by 33% from $375.4 cardinal successful 4Q 2021 to $249.6 cardinal successful 4Q 2022. A diminution successful gross mixed pinch nan little level of profits and EBITDA led to little separator ratios astatine nan extremity of 2022.

GOGL's gross profit separator was 0.44 successful nan 4th fourth of 2022, which is acold little than its magnitude of 0.63 astatine nan extremity of 4Q 2021. Also, nan company's EBITDA separator was 0.42 successful 4Q 2022, which is astir 32% little twelvemonth complete twelvemonth compared pinch its magnitude of 0.62 astatine nan aforesaid clip successful 2021. Moreover, Golden Ocean's nett profit margin, which is simply a last image of really profitable nan institution is aft each expenses, dropped considerably to 0.27 successful 4Q 2022 versus its erstwhile magnitude of 0.37 astatine nan extremity of nan 3rd 4th of 2022 and 50% twelvemonth complete twelvemonth versus 0.54 successful 4Q 2021. As a result, nan weakening marketplace conditions successful nan preceding twelvemonth affected Golden Ocean's gross and declined its separator ratios (see Figure 3).

Figure 3 - GOGL's separator ratios

Author (based connected SA data)

I looked into GOGL's return connected equity and return connected assets ratios to show really good nan institution tin tailor returns to its shareholders. The ROA ratio illustrates nan magnitude of profit a institution whitethorn nutrient for each dollar of its assets. The ROA ratio of 2.09% for Golden Ocean successful 4Q 2022 decreased by 106 bps from nan 3rd 4th of 2022 and 381 bps year-over-year compared pinch its level of 5.90% successful 4Q 2021. Additionally, its return connected equity of 3.56 % successful nan 4th fourth of 2022 is acold little than 5.44% and 10.57% successful 3Q 2022 and 4Q 2021, respectively. ROE ratio shows nan company's nett income concerning shareholders' equity and is important since it calculates nan complaint of return connected nan superior invested successful nan business. Golden Ocean's nett income of astir $104 cardinal successful nan 3rd 4th of 2022 dropped considerably to astir $68 cardinal successful nan 4th fourth of 2022 and frankincense affected its return ratios. It intends that nan return ratios of Golden Ocean could bespeak that nan return circumstances of nan corp weakened owed to nan deficiency of nan barren bulk marketplace and I expect akin results for nan first 4th of 2023 (see Figure 4).

Figure 4 - GOGL's return ratios

Author (based connected SA data)

Summary

Golden Ocean's nett income and gross successful 4Q 2022 dropped considerably twelvemonth complete year, and frankincense affected its separator and return ratios negatively. The company's nett profit margin, which is simply a last image of really profitable nan institution is aft each expenses, declined successful nan 4th fourth of 2022. Also, according to nan existent barren bulk shipping marketplace outlook, I don't expect GOGL's 1Q 2023 financial results to improve. GOGL is simply a sell.

As a basal banal marketplace analyst, I mostly usage real-market information to estimate stocks' intrinsic value. I measure dividend stocks utilizing Comparative Company Analysis and Dividend Discount Model methods. I besides usage statistical study to make projections connected variables related to nan marketplace to move my observations into numbers.