The IPO met some headwinds in the form of a $190m follow-on equity offering from “alpha male” MR specialist Scorpio Tankers; this has been its fourth secondary offering in 2013. Ardmore’s money raise will help fund its newbuild program, while Scorpio will be using its proceeds to purchase vessels in the MR and LPG sectors.
The sector continues to be a favorite for investors, buoyed by continuing strength in the MR tanker rates; broker Fearnley’s, in its weekly report, commented: “Rates currently look firm at W145 bss 37kt UKC/USAC, with likelihood for upside.” By early August, the North Atlantic barometer “TC2” route had continued to strengthen, reaching W158- worth approximately $17,500 per day on TCE basis.
Traders of FFA’s, who communicate closely with stock investors, were valuing expected earnings on the route at above $13,000 per day for December- indicative of further optimism. Brokers were reporting period charter fixtures of eco-newbuilds, basis one year, at around $17,000 per day, another extraordinarily healthy indicator, if the rumour mill is accurate.
More conventional but still modern tonnage is rated at $14,250 per day - $14,500 per day by intermediaries, also basis one-year time charter. The strengthening of such indicators, based on activities in the ship chartering markets, has not gone unnoticed by investors.
In the tug of war between income - linked to steady charters and payouts to shareholders, and growth - sometimes a euphemism for “asset play”, especially where attractively priced options on newbuilds can easily be “flipped”, the companies face a delicate balancing act. Ardmore plans to pay a dividend; indeed, its regulatory filings suggest that part of its IPO take will go towards a shareholder dividend.
Scorpio, which has now turned profitable, has declared a dividend of $0.035 per share, payable in September, up from the $0.025 per share recently paid with respect to the previous quarter. The dividends are puny (offering a small 1.4% yield, based on the current share prices, so it’s presently best positioned for growth investors), but provide an important symbolism in the face of Scorpio’s enormous forward capital expenditures. D’Amico International Shipping, another eco vessel-acquisitive stalwart that’s recently disposed of its older vessels (at a profit reflecting the overall buoyancy in the sector), has also reported a turn towards profitability.
A research report on Capital Products Partners, covered by Evercore analyst Jonathan Chappell, emphasizes the importance of payouts in determining a potential value of equity, and in buttressing recommendations, Evercore has an “overweight” on CPLP. In talking about the increasing cash distributions per unit (CDU- analogous to a dividend), the analyst says: “…we believe that CDU upside could come from our forecast that the product tanker rate environment will continue to improve, which is timed well with charter expirations for CPLP’s fleet.”
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