Description

It’s about time for a TRBR update. The news flow so far this year has been poor, distracting investors from a continuing turnaround. During 2006, the company got hit with much higher than expected dry docking expenses and an interruption in the Peurto Rico Government that disrupted freight. These two events have clouded the picture of a business that’s executing well on a turnaround plan. There has been enough written about this name in the past, by myself and others that I’ll just stick to what’s incremental.  It seems much of the bad news is behind us and this is a timely point to revisit TRBR.

Dry docking:  The company has spent $12.2 million on dry docking this year for 3 of it’s 7 vessels. This includes both of the Ro-Ro Vessels and 1 of the Triple stack barges. In contrast to the $6 million for each of the Ro-Ro Vessels, the dry docking for the Triple stack barge was 600K. Two points: All the rest of TRBR’s vessels are Triple stac barges and dry docking takes place only every 5 years. So this is behind them for a considerable time.

FCF yield: I’ll start with FCF and then will make adjustments for taxes and maintenance cap ex to get to FCF. In 2005, the company generated 64c in EPS. The first half of 2006 has been a wipeout with the drydocking expenses (which they fully expense, unlike their competition who typically capitalize them). The 3Q will still contain some downtime and expenses for dry docking. The company has stated publicly (unusual for them), however that they expect their 3Q and 2H results to “eclipse” the results from the prior year. I think it’s reasonable to be looking at EPS of at least $1 per share in 2007 from continued execution.  Though they report untaxed earnings, they have a NOL that will probably now last them though 2010-2011. In addition D&A exceeds maintenance cap ex by $3 million. On a $7.50 stock, it’s looks to be trading north of a 10% FCF yield.  

New contract: Last week, TRBR announce a nice contract win to move military cargo to Puerto Rico. The deal only lasts 1 year, but the contract can be extended for 2 more. The contract is for approximately $3 million on an annual basis. My impression is that military cargo tends to be very high incremental margin given that they’ll bring in to/from the port. In general I’ve modeled incremental volume at around a 70% margin, but think will be even higher.

Ability to deploy additional boats: They still have 3 vessels idle that can eventually be brought back into the market that aren’t factored into this analysis.

Catalyst