Castor Maritime (NASDAQ:CTRM), based in Cyprus, released its first quarterly report earlier this week, after the recent spin-off of the company’s tanker activities into Toro Corp. (NYSE:TORO), or “Toro.”

Nonetheless, the company’s Q1/2023 statistics contained more than two months of Toro contributions because the spin-off was not completed before March 7, 2023.

Earnings for the First Quarter of 2023

While Castor Maritime claimed $0.11 per common share in earnings, this was entirely attributable to the Toro contribution, while the company’s continuing operations actually lost money.

Following the first quarter’s high seasonal downturn in the Baltic Dry Bulk Index (BDI), the company’s daily time charter equivalent (TCE) rate was down more than 40% year on year.

As a result, Adjusted EBITDA suffered significantly,

Furthermore, I was shocked to see the company report a $7.7 million unrealized loss on equity securities at the end of the quarter without offering any additional data in the results statement. The cash flow statement indicates $31.5 million in net acquisitions of equity securities in Q1, which were reportedly classified under “Other current assets” on the balance sheet.

Furthermore, a $117.3 million “Investment in Related Party” has been reported under “Non-Current Assets,” which appears to be the projected market value of the preferred shares provided to the firm by Toro at the time of the spin-off.

Cash and restricted cash of $72.5 million was nearly cut in half from the end of 2022, owing to the recent Toro spin-off and the previously mentioned undisclosed equity securities acquisitions during the quarter.

Castor Maritime appears to be one of the best deals in the maritime sector based solely on net asset value (NAV).

Please keep in mind that I valued the preferred stock granted to the company by Toro at its $140 million liquidation preference, but even with the lower value reflected on Castor Maritime’s balance sheet, NAV per common share would still be around $5.20.

Clearly, investors are dismissing the reality that the company has aggressively pursued expansion at the expense of common equity holders in recent years, resulting in shares falling 98% since the company’s Nasdaq listing four years ago.

Despite the fact that the company’s ordinary shares are now trading at a 90%+ discount to NAV, Castor Maritime recently engaged in a new $30 million equity distribution arrangement with Maxim Group LLC, which has the potential to further dilute existing equity holders.

Unsurprisingly, market participants have been fleeing in recent sessions, prompting shares to hit fresh all-time lows.

Please keep in mind that the company has not met Nasdaq’s $1 minimum bid price criterion, but has been granted a 180-day grace period until October 17.

In Conclusion

With the tanker bonanza spun off into Toro, Castor Maritime’s near-term revenues and cash flows will be significantly impacted, especially given that dry bulk charter prices have been nothing to write home about recently.

While the company’s recent involvement in unclear equity purchases and the new $30 million equity distribution deal with Maxim has increased the discount to estimated net asset value to above 90%, the company’s recent involvement in unspecified equity purchases and the new $30 million equity distribution agreement with Maxim present additional cause for concern.

Furthermore, investors should brace themselves for another reverse stock split later this year.

Due to these concerns, I am downgrading Castor Maritime’s common stock from “Hold” to “Sell.”

Featured Image: Freepik @ tawatchai07

Please See Disclaimer