Clarksons Securities is looking for bigger things out of New York-listed International Seaways, and perhaps in a way that will remind some of a major shareholder: one John Fredriksen.
In a client note published on Tuesday after meeting with Seaways management, Clarksons analysts Frode Morkedal and Evan Kolsgaard targeted larger dividend payments and share buybacks from a diversified tanker owner that has few other near-term priorities for its cash.
“More investments are unlikely at this time, in our opinion,” the analysts wrote.
“The balance sheet is strong, with a [leverage] of under 35% and plenty of cash on hand ($450m). As a result, we would not be surprised if the company distributed extra cash as a special dividend or in conjunction with share buybacks.”
With recoveries underway in both the markets in which Seaways plays – clean product and crude tankers– Clarksons expects strong cash flows in the coming quarters. The bank raised Seaways’ price target to $50 per share.
Seaways was trading near $32.80 at midday in New York on Tuesday, up more than 1% during a broader market sell-off triggered by higher-than-expected US inflation figures for August.
Morkedal’s note comes with the backdrop of Fredriksen’s persistent interest in the Manhattan company.
Fredriksen's Seatankers took a 16.6% holding earlier this year and revealed on 1 September that it had made a presentation to Seaways management highlighting its record of creating shareholder value. Seaways meanwhile said it was looking for ways to work with the shareholder.
Seatankers effectively has turned up the pressure on management to deliver for shareholders, although the return of capital projected by Clarksons is something Seaways management has long promised on its own after completing earlier phases of fleet renewal, expansion and debt reduction.
“We suspect it could take a cue from John Fredriksen, who has a history of paying out generous dividends based on whatever is earned quarterly, sometimes in full, sometimes in part, depending on liquidity needs. What matters, we believe, is establishing a track record delivering significant shareholder returns,” Morkedal wrote.
Seaways’s fleet consists of 13 VLCCs, 13 suezmaxes, four aframaxes, one LR2, eight LR1s and 39 MRs, with an average age of nine years. The average age has dropped with Seaways buying assets toward the bottom of the tanker cycle at what now appear to be bargain prices.
The shipowner has meanwhile reduced debt to 34% on a loan-to-valuation basis, leaving “little benefit to further deleveraging”, Clarksons said.
