Harvest time and romance for Scorpio Tankers

With its recently announced Dorian LPG transaction, Scorpio Tankers is set to enter what Robert Bugbee, the company president, calls a “harvesting” phase. In its Q3 earnings call, Bugbee talked about the fruits of its previous investments in product tankers (both MR and LR sizes) and LPG/ large gas carriers now bearing fruit.

Except for a few brief words from chairman and ceo Emanuele Lauro, Bugbee did all of the talking for Scorpio, likening the company merger process as being akin to romance- which starts with a dance and evolves into a marriage. In this deal, Scorpio will contribute its fleet of VLGCs, and also options on additional newbuilds, into Dorian, in return for a 30% shareholding.

Along with low cost Korean financing now in place, the new transaction enables Scorpio to think about further increasing its dividend, a subject of discussion on the call, and, reprising his years at OMI, “buying back stock if the market does not put the value on it that we do.” Bugbee stressed that the management viewed the Dorian transaction as being the best use of shareholder money: analysts agreed and Jefferies & Company’s Doug Mavrinac has now raised his target to $14.00 per share, $1.00 higher than Cowen & Company’s Sam Margolin, who has a $13.00 per share target on Scorpio’s shares.

Bugbee is not shy about slapping analysts around on conference calls, turning the tables on questions about possible over-ordering in the MR sector into “how high will it go in the winter?” He also cautioned analysts to watch the sale and purchase transactions, with ship values that he expects to rise, closely when computing company NAV (net asset values), a measure widely followed by shareholders.

Analyst questions also delved into additional opportunities for Scorpio, which, predictably, did not draw explicit answers. As an aside, when bankers talk, they refer to shares priced above NAV as being currency for buying additional companies- which possibly puts a context on Bugbee’s remarks on vessel values.

Of considerable interest, and lacking great answers from the Scorpio management team is the situation surrounding the commissions that the management team receives on buying, selling and financing transactions. Bugbee hinted at the sensitivity to keeping these payments “lower than you might calculate,” and told analysts to watch for some disclosure in future regulatory filings. But, on the other hand, these payments are something of a red herring as many shipping investors are used to situations where private families and public companies join forces.

Posted 30 October 2013

© Copyright 2019 Seatrade (UBM (UK) Ltd). Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Seatrade.

Barry Parker

New York correspondent, Seatrade Maritime

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