Scorpio Bulkers (SALT) – Beaten down shipping stock looking to transition into renewable energy

  • SALT is looking to dispose of its dry bulk carrier fleet and reinvest the proceeds into purchase of a Wind Turbine Installation Vessel (WTIV)
  • Contract with Daewoo Shipbuilding worth $280mm expected any time now. Contract most likely to include an option to purchase up to 3 more vessels with similar specifications
  • The offshore wind industry is forecasted to grow at a CAGR of 15% over the coming years
  • SALT sees a massive shortfall in the supply of WTIVs and it hopes to capitalize on this going forward. At the moment, there are roughly 7,200 offshore wind turbines installations globally. According to the IEA, this number is expected to reach 26,900 by 2030.
  • Governments around the world are increasing their focus on renewable energy and in particular, offshore wind energy. The U.S. has a target to install 28GW of wind energy by 2030. The European Union also announced its target to have wind power provide half of the EU electricity supply by 2050
  • Though it has been recording negative cashflows for the past few years, the transition to offshore wind energy could be a turning point for the coming and help it become cashflow positive
  • SALT has seen success is disposing its fleet and we can expect this to continue until the entire fleet is sold off. In the last 2 months, it has sold off 20 vessels for a gross consideration of $365mm
  • Current contract rates of $220,000/day for WTIVs imply attractive cashflows and return on capital. These rates are expected to improve as the market tightens, and demand increases over the next 5 years
  • SALT is the only U.S. listed WTIV player, giving it a significant first-mover advantage
  • Analysts are bullish on this stock with a median price target of $30, representing potential upside of 76% from current price