Offshore wind-market player Eneti is making the case for a substantial ramp-up in valuation as contract coverage grows and funding requirements for its newbuilding programme appear to have been met.
That was the take from Clarksons Platou Securities analyst Turner Holm on Friday after the New York-listed owner of wind turbine installation vessels (WTIVs) reported first-quarter earnings.
35% of NAV
Eneti is trading at only 35% of its estimated net asset value of $15.90 per share and the huge discount is getting more difficult to justify, Holm told clients.
“Eneti shares trade at a deep discount to replacement cost and at arguably low multiples, in our view, despite increasing earnings visibility, a strong demand outlook for offshore wind, rising replacement costs and a fully-funded balance sheet. With this backdrop, valuation appears unsustainably low, in our view,” Holm wrote.
Eneti is backed by the private Scorpio Group of Monaco. Eneti formerly was known as Scorpio Bulkers, a major owner of dry bulk tonnage before the group in 2020 elected to begin selling vessels and transitioning into the wind market.
The company also has transitioned much of its shareholder base over that time and the stock performance has been sluggish, with the share down about 33% year to date.
But Eneti continues to fill in the blanks as to what its forward business will look like. With the announcement of several contracts for 2022 and 2023 at earnings essentially covering its existing fleet for the period and building revenue backlog to $250m.
While Eneti reported an adjusted loss of $0.37 per share in the first quarter, Holm expects Ebitda to turn from red to black in the current quarter and escalate from there.
Eneti raised $175m of equity last November to fund its newbuilding programme, which also includes two WTIVs to be delivered from South Korea’s Daewoo Shipbuilding & Marine Engineering in 2024 and 2025.
Holm estimates that Eneti is adequately capitalised to cover the newbuilds, with $151m in available cash. Assuming 55% debt on the newbuilds – Eneti projects 60% – the owner needs to cover a further $91m out of $154m in estimated free cash flow before the first delivery.
Eneti also continues to own 2.16m shares in Scorpio Tankers with a current value of $55m that is likely to rise in a recovering tanker market.
“Valuation appears too cheap to ignore,” Holm concluded, saying a 3.4 times ratio of enterprise value to ebitda compares to the 6 to 8 times ratio that is normal for heavy assets in the offshore sector.