Scorpio Tankers’ investment dollars are just fine with the man who heads fellow New York-listed shipowner DHT Holdings.
DHT chief executive Svein Moxnes Harfjeld welcomed Scorpio’s $89m play for a 4.9% stake in his company in a message to TradeWinds shortly after the product tanker owner disclosed it in a quarterly earnings statement on Tuesday.
“We appreciate that the experienced and insightful management team of Scorpio has invested in DHT to express their constructive view on our company and the VLCC market,” Harfjeld wrote.
Scorpio’s first direct investment in a sector outside its clean-product niche in more than a decade was the headline element of a quarterly earnings report that beat consensus expectations of Wall Street analysts but reflected a weaker start to the current quarter.
Not surprisingly, it was the first thing asked about on Scorpio’s hour-long earnings call, as Jefferies lead shipping analyst enquired whether it was a short-term play on an expected winter recovery of the VLCC market, or something longer-term.
“This winter is lining up to be a very strong winter for the crude side,” Scorpio president Robert Bugbee said.
“We think DHT is very undervalued and we’re setting up a great investment for the company. As with any other investment, we’ll watch where it goes. It could prove to be a good long-term position.”
DHT returns a lot of capital to investors and Scorpio already has received one dividend payment since buying in, Bugbee noted.
“I don’t think you use a public company as a short-term trading vehicle when you go in. You’ve got great fundamentals for a period of time in the VLCC market,” he said.
Nokta asked Bugbee whether the 4.9% figure was intentional, or whether Scorpio might add to the position.
“We wanted to make what we were doing clear to the market,” Bugbee said. “It could have been a mixed message if we went in at 6 or 7 or 8%. It could have led to the thought that we weren’t a passive investor.”
Scorpio has no intention of actually acquiring VLCCs, but sees another way to play that market, he said.
“So we’ve managed to acquire two or three or four VLCC equivalents and we’ve bought them 30% below sale price. We’re happy and content with what we’ve got,” Bugbee said.
With the purchase, Scorpio slots in as the fourth-largest shareholder in DHT according to information published in the VLCC owner’s most recent annual report.
The BW Group leads the way with a 16% position, followed by US long-only fund Fidelity at 11.3% and Dimensional Fund Advisors at 8.3%.
Bugbee stressed to analysts that the investment in no way detracts from Scorpio’s top priority: buying back its own shares.
It repurchased $234m worth of stock in the third quarter and $300m since the beginning of the year.
While Scorpio’s DHT play generally was treated positively by equity analysts, there was a dissenting note from Deutsche Bank researcher Chris Robertson.
“While we understand that certain investors may want exposure to the VLCC crude tanker segment, we question if this decision should be made for them by Scorpio’s management team, especially when STNG shares are trading significantly below estimated NAV per share,” Robertson told clients on Tuesday.
