September 21, 2007, 9:21 am

PRGN - Paragon Shipping

disclosure: does hold a position currently in PRGN. Full analysis pieces on every ipo for subscribers at

PRGN - Paragon Shipping

PRGN - Paragon Shipping plans on offering 10.3 million shares at a range of $16-$18. UBS and Morgan Stanley are lead managing the deal, Cantor Fitzgerald and Dahlman Rose are co-managing. Post ipo PRGN will have 26 million shares outstanding for a market cap of $442 million on a pricing of $17. IPO proceeds will be used to assist in purchasing PRGN's fleet.

Chairman and CEO Michael Bodouroglou will own 20% of PRGN post-ipo.

From the prospectus:

'We are a recently formed company incorporated in the Republic of the Marshall Islands in April 2006 to provide drybulk shipping services worldwide. We acquired our current fleet of three Handymax and three Panamax drybulk carriers, which we refer to as our initial fleet, in the fourth quarter of 2006 and the beginning of 2007.'

PRGN's initial fleet of six drybulk vessels achieved daily time charter equivalent rates of $24,080 the first quarter of 2007. All six are currently employed under fixed rate time charters with an average remaining term of 19.6 months as of June 30, 2007. In addition to the initial fleet, PRGN has agreed to purchase an additional three drybulk vessels. These three have existing charters with an average remaining term of 28.1 months as of June 30, 2007.

PRGN plans to distribute cash flows quarterly to shareholders. Based on projections, the initial dividend is expected to be $0.4744 quarterly. Annualized that will be $1.90. On pricing of $17, PRGN would yield a very strong 11.2%.

A quick glance at annual yields of similar public companies based on most recent quarterly payout:

OCNF 9.7%; DSX 8%; DRYS 1.5%; EXM 2.7%; EGLE 7.3%; GNK 4.8%; QMAR 7%.

Some of the public dry bulk shippers distribute bulk of cash flows to shareholders, some utilize cash flows to grow. PRGN on a mid-range pricing would be the strongest yielding public drybulk shipper it would appear. This strong dividend makes the deal work.

Note - PRGN has three time charters expiring over the next few months. They've already rechartered each at substantially higher rates then the previous charters.

CEO and Chairman Michael Bodouroglou will also act as Fleet Manager through another company he owns and operates. Fleet management fees appear as if they'll be approximately $2.2 million annually.

Average age of the combined fleet is 7.8 years.


Dry Bulk cargo consists of of iron ore, coal and grains as well as fertilizers, forest products and essentially any non-liquid, non-container cargo. Dry bulk cargo accounts for 33% of world seaborne trade with coal and ion ore combining for 51% of all dry bulk cargo. The dry bulk cargo sector has grown an average of 5% annually this decade.

Dry bulk rates exploded in late 2003 and hit all-time highs the second half of 2004. New shipbuilds had slowed to a crawl during the worldwide economic slowdown in 2001-2002 and there just were not enough vessels in use in 2003/2004 to handle the demand boom from China/India coupled with a worldwide economic activity pick-up. Since, the sector has seen a sharp rise in new vessel construction much of which has begun to come on-line the past 2 years. The result has been a move off the highs for the dry bulk spot rate market. Worldwide demand however has continued to remain strong and while dry bulk rates are not at their record levels, they have been in a fairly tight range the past two years at historically strong levels. The big risk in the shipping sector is a worldwide economic slowdown just as heavy supply of new shipbuilds come on-line.

The big risk here is that there is a global economic slowdown at just about the time PRGN's charters expire. If that is the case, PRGN may struggle to replace their vessels at a price near current charter rates. Also as this sector is notoriously cyclical, new shipbuilds tend to increase dramatically during periods of strong rates. That is occurring currently. As of 4/30/07 drybulk newbuilding orders had been placed for an aggregate of more than 20.0% of the existing global drybulk fleet, with deliveries expected during the next 36 months. This is a classic boom/bust sector with a few of the public companies in the sector managed by those that went bankrupt during the last cycle trough.


PRGN will have a bit of debt on the books post ipo, $126 million worth.

1 1/2 X's book value.

Forecast - As PRGN plans on distributing nearly all quarterly cash flows to shareholders, cash flow here is what to look at not earnings. PRGN forecasts approximately $85 million in revenues their first year public. Based on current charter rates, PRGN anticipates $45-$50 million in distributable cash flows.

conclusion - The initial yield makes this deal work. Keep in mind while the yield is strong, this a classic boom/bust sector currently enjoying a boom time. Recommend due to the 11.1% initial yield on a pricing of $16.

September 4, 2007, 7:22 pm


Well it appears the ipo schedule will commence next week after a 3 week or so lull. We should see quite a few the back half of September so we'll resume the one free weekly blog piece.

This weeks is an interesting China ipo from August, EJ. Note as always analysis pieces are available for subscribers before debut. The free blog pieces are all done pre-ipo and posted here after debut. We've analyzed pretty much every ipo here before debut for 2 1/2 years now. Subscriptions to the site are available at:

EJ - E-House(China) Holdings

EJ - E-House (China) Holdings plans on offering 16.8 million ADS at a range of $11.50 - $13.50. 4 million ADS will be sold by insiders. Credit Suisse and Merrill Lynch will be lead managing the deal, CIBC and Lazard co-managing. Post-ipo EJ will have 76 million ADS equivalent shares outstanding for a market cap of $950 million on a $12.50 pricing. Bulk of ipo proceeds will be used to fund capital expenditures.

Chairman and CEO Xin Zhou will own 30% of EJ post-ipo.

From the prospectus:

'We are a leading real estate services company in China based on scope of services, brand recognition and geographic presence. We provide primary real estate agency services, secondary real estate brokerage services as well as real estate consulting and information services.'

EJ has been the largest real estate agency and consulting services company in China for three years now (2004-2006). EJ has 2,100 real estate professionals in twenty cities throughout China. In the past five years they've sold 5 million square feet of properties worth a $5.4 billion US. EJ also operates the only information system that provides up-to-date, comprehensive and in-depth information covering residential and commercial real estate properties in all major regions in China.

Chinese sector leaders in fast growing sectors have done very well in the US market the past few years, usually garnering aggressive multiples. The US market has not been a 'one size fits all' for Chinese offerings, the differentiators would appear to be that sector leadership. Sector leaders tend to outperform non-sector leader Chinese ipos. Financials and valuation aside, EJ would appear to fit in the 'sector leadership outperformer' category.

Awards - EJ has been named "China’s Best Company" from the National Association of Real Estate Brokerage and Appraisal Companies in 2006, and the "Leading Brand Name in China’s Real Estate Services Industry" from the China Real Estate Top 10 Committee in 2006.

Sector - The real estate sector in China has experienced rapid growth with primary property sales revenue growing 38% over the past five years. Primary property refers to the sale of new properties, which is EJ's focus. As such, EJ's clients tend to be real estate developers who utilize EJ's middle-man services to consult on development and to sell their properties. 82% of revenues in 2006 were from services relating to 'primary' (newly developed) properties.

Approximately 45% of 2006 revenues were derived in the populous Shanghai, Jiangsu Province and Zhejiang Province.

Governmental Control - Since 2006, the PRC has instituted a number of initiatives to slow the swift property growth rates. These include: requiring that at least 70% of the land approved by a local government for residential property development for any given year be used for developing low- to-medium cost and small-to-medium size units and low-cost rental properties; 70% of construction be for 'small unit space' properties. Increasing the down payment required for larger properties; imposing a resale tax on properties held less than five years.

Note- EJ has very high 'receivables' for their revenues stream. The June 2007 quarter saw approximately $23.5 million in revenues, while receivables on the book totaled $48.5 million. This appears due to EJ receiving payment for services only after a development (or phase of development) has been completely sold. EJ reports revenue upon each sale, however they do not receive the actual monies until the entire development project has been completed and all units sold. I'm not real thrilled with this accounting method. It appears to be a concession EJ has made to garner business, which is fine. However they've substantial receivables on the books that they've already booked as revenues but have not yet been paid. Cash flows here are not nearly as impressive as revenues/earnings would indicate. If all goes well they would eventually see the cash, however there appears to be serious lag time here from 'booking' revenues and actually receiving monies.


$2 per share in cash post ipo.

Tax Rate - EJ is taxed a little more heavily than many of the Chinese based ipos we've seen. It appears EJ's current tax rate is in the 25%-30% ballpark.

Historically, EJ has booked an outsized revenue number in the fourth quarter of the year. For example in 2006 quarterly revenue numbers were (in millions) $4, $10, $8 and $34. I would expect a similar trend in 2007.

2006 - Revenues were $56 million, a 44% increase over 2005. Operating margins were a strong 44%. Net margins were 34%. Earnings per share were $0.24.

2007 - As the bulk of revenues will be booked in the fourth quarter, it is a bit difficult to forecast full year. However based on the growth in first and second quarters, I would expect revenues to rise sharply in 2007 to $115 million or so. That would be a very impressive 100%+ revenue growth in 2007. Operating margins should improve to 50%. *Note* - both revenue and operating margin numbers assume a strong fourth quarter of 2007. Net margins should be 38%. Earnings per share should be $0.55 - $0.60. On a pricing of $12.50, EJ would trade 22 x's 2007 earnings.

*Note* - EJ's net margins and earnings per share are not quite comparable to similar sector leader Chinese ipos in that their earnings are taxed at a higher rate than most of those.

Conclusion - Strong recommend in range. In fact, EJ is so attractive in range, I expect the range to be increased here. Sector leader in a fast growing sector, 100% revenue increase expected in 2007, coming at a pretty fully taxed 21 X's 2007 earnings. EJ is coming too cheap in range.

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