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Today's Momentum Focus Is Box Ships Inc (OTCMKTS:TEUFF)

Today's Momentum Focus Is Box Ships Inc (OTCMKTS:TEUFF)
Written by
Alex Carlson
Published on
August 8, 2016
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Box Ships Inc (OTCMKTS:TEUFF) has quickly turned into one of the top momentum names on the OTC Markets. The stock is now trading more than it has in the past six months as momentum traders and algos chase the next hot runner. We've seen not only a recovery in Box Ships, but across the entire shipping industry. Names that have been beaten down for over two years are finally staging a rally. This comes as shorts cover and there's finally some optimism that the dry bulk shipping sector might have bottomed and a recovery is in store.Box Ships Inc. is an Athens, Greece-based international shipping company specializing in the transportation of containers. Shares previously traded on the Big Board under the symbol TEU before they got relegated to the OTC Markets. The Company’s current fleet consists of nine containerships with a total carrying capacity of 43,925 TEU. The company has been savaged due to over-leverage, the collapse in dry bulk shipping prices, and convertible debt.Back in June, Box Ships was able to reach a deal with its main creditors. The company deferred a $100 million loan with ABN Amro until June 2017. Box Ships also deferred a $31.65 million loan with Credit Suisse until May 2017. CEO Michael Bodouroglou said:

"We are very pleased to have agreed in principal with our lenders the deferment of the repayment instalments, as these terms illustrate the ongoing support of our lenders and will enable us to operate our vessels at lower fixed cost break-even rates. Provided that definitive agreements are executed and all conditions are fulfilled, the Company will not pay any installments under all of its facilities until the first quarter of 2017.”

By deferring to next year, it allows Box Ships to hopefully capitalize on a recovery in the dry bulk shipping industry. The industry collapsed due to simple supply/demand economics. There were far too many ships and not enough demand. However, the Dry Bulk Forecaster sees increasing trade and contracting supply supporting a recovery in charter rates on major dry bulk shipping routes, with the prospect of China importing more coal and iron ore to combat pollution and poor quality. But here's what we thought was more interesting. All Box Ships has to do is ride it a little longer and the company will benefit from a contraction in supply.

On the investment side, tighter financing options and restrained new ordering have helped the dry bulk market to keep supply in check so far. A high number of slippages and cancellations will impede any substantial growth in deliveries over the next few years. Demolition of ever-younger vessels is expected to result in a slowdown in fleet growth this year. And a similar rate of demolition and delivery in the next year will help deflate oversupply further. Demand growth, which seemed to be an unlikely prospect throughout last year and the early part of 2016, has been helping the dry bulk market come off the bottom.

While these developments are all positive, the biggest obstacle facing Box Ships is convertible notes. On August 5, the company signed a $250,000 convertible note that will be converted at a conversion price equal to 65% of the lowest volume weighted average price of the Common Stock during the 21 trading days prior to the conversion date. Investors had been hoping that the days of convertible notes were behind the company, but a new one just got issued a few days again. These toxic financiers engage in convertible notes for only one purpose, convert and sell.Currently trading with a market cap of just $1 million, TEUFF is like trading a lotto ticket on the OTC Markets. If shipping rates recover, the share price of TEUFF will make current investors several times their money based on current levels. We could easily see shares trade north of $.50 and possibly even $1 a share. Judging by CEO Michael Bodouroglou's update to shareholders, he still believes in the company's potential.

Today, as we enter the second half of 2016, our management team believes better days are ahead. Market sentiment has clearly shifted in recent months, away from the depressed views back in January and February. I can promise you we will be ready when the containership sector begins to rebound. If I didn't think this was a battle we could win, I wouldn't be in the fight. I am a significant Box Ships shareholder myself. Our interests are aligned. We are optimistic about the future and are positioned to exploit any opportunities. We appreciate your ongoing support and trust, and hope you will continue to have faith in our leadership throughout the remaining months of 2016 and into the future.

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Disclosure: We have not position in TEUFF and have not been compensated for this article.

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