So about that problem of public tanker stocks trading well below company net asset values — well, it’s funny how an historic rates rally can make problems go away.
The recent run-up of public shares amid a turbo-charged hire climate in the crude sector was a hot topic this morning on financial panels at Capital Link’s annual New York Maritime Forum.
It’s not just about the immediate gains. For if the trend is sustainable, it could lay the groundwork for more merger-and-acquisition activity involving public tanker companies and a better climate for “stuck” private equity investors to exit their bets.
“It’s a heck of a lot easier now with companies trading above NAV — everything is easier on the M&A front,” said Michael Kirk, managing director of RMK Maritime.
This drew agreement from Douglas Marvrinac, lead shipping investment banker for New York’s Jefferies.
“We’re having several conversations with owners on that basis and everything is on the table, including ships-for-shares deals — and that was even before the recent run-up,” Mavrinac said.
In one example of the trend, Deutsche Bank has six tanker companies under its coverage trading at an average 115% of NAV on current numbers. This is up from 99% in July.
Analyst Chris Snyder does include a caveat: the ratio is based on September tanker valuations — stocks move faster than brokers can update vessel values.
While offering the same warning on stale valuations, Jefferies analyst Randy Giveans lists nine of the 10 tanker companies under his coverage now trading above their NAVs.
The improved climate comes amid what Citi investment banker Christa Volpicelli calls a recovery of investor interest in shipping.
“We’ve done a survey recently and we do believe investors are looking to put money back into shipping,” she said.
“It is ultimately increased earnings that will drive stock prices upward. Next year should be a much better year, we all hope.”
Yet both Volpicelli and Jae Kwon, managing director of DNB Markets, said that beyond the sanctions-fueled pop that has seen VLCCs trade above $300,000 per day, investors are also looking to see whether hype around a further IMO 2020 emissions effect is legitimate.
“I don’t think IMO 2020 is all priced into the stocks yet,” Volpicelli said. “We’ll now see what it all means. We’ll see how it translates into earnings based on the differentiated company strategies.”
Kwon agreed.
“With tanker stocks running up, there’s increased excitement around the tanker space,” he said.
“But people are looking more tentatively at IMO 2020. Some are sitting on the sidelines waiting to see whether this is real. Others are starting to make their bets.”
There is also revived interest from so-called “long only” funds that have been largely absent from shipping in the last few years, as they are at least studying the sector once again, Kwon said.
In a later panel on private equity, Apollo Management operating partner Art Regan agreed that a rising price-to-NAV scenario works in favour of M&A, including for private equity funds who have been “stuck” in their tanker bets.
“Why would I trade (assets) into a stock that’s selling at 60% of NAV when I could just sell into the market at NAV,” Regan said, before acknowledging that selling privately becomes more difficult with a fleet of 30 or 40 ships.
“But it is interesting. Now that the public companies are trading up, it gets more feasible to do that.”
