Product tanker giant Scorpio Tankers has bought back 27% of the company since this time last summer as part of a massive transformation of its balance sheet.
Scorpio disclosed the scope of the stock repurchase programme as it reported on Wednesday an adjusted net income of $133.3m or $2.41 per share for the second quarter, a figure that topped consensus analysts’ expectation of $2.38.
The Emanuele Lauro-led owner made news earlier this week when it disclosed that its private arm had bought a 5.33% stake in Irish product tanker owner Ardmore Shipping over the past two weeks as a play on what it considers an upward turn in fortunes of the clean trade.
Scorpio acted at a time when securities rules made it forbidden to buy back its own shares, explained president Robert Bugbee, who also revealed significant buys of another peer, Oslo-listed Hafnia.
But the numbers revealed on Wednesday show that Monaco- and New York-based operator has been quite prolific at buying its own stock when the regulatory window is open: it clawed back $261m worth during the second quarter, $138m in the first quarter and $161m in the second half of 2022.
With Scorpio shares still trading at a steep discount to net asset value, the buying isn’t done, Bugbee made clear as he fielded questions from equity analysts during an earnings call on Wednesday.
“We’re not thinking about newbuildings at all — that’s very, very low down on our capital allocation list,” Bugbee said in response to a query.
“It’s much better to buy your own stock than order a vessel that won’t come until 2026 anyway. I’d rather take that dollar and put it in [Scorpio] or Ardmore or Hafnia. And at this point, an investor would want the company to use cash flow on stock buybacks rather than pay a [higher] dividend that everyone gets taxed on. The dividend part can wait.”
Investment bank Jefferies places Scorpio’s NAV at $66 per share. The stock was just over $48 in morning trading on Wednesday, up almost 2% but still a 27% discount to NAV.
Scorpio is the second leading product tanker owner in two days to report bookings in the seasonally weak third quarter that are better than most analyst expectations, lending weight to Bugbee’s call on an “inflection point” in the market. Ardmore did likewise on Tuesday.
It has fixed 41% of days for its LR2s at $27,000 per day and 37% of its MRs at the same rate, compared to Jefferies’ estimates of $29,000 for the LR2s and $23,500 for the MRs.
“Eco LR2 spot rates have recently risen to $45,000/day while eco MRs are at roughly $27,000/day, signalling Scorpio’s final averages will be higher than its bookings-to-date,” said Jefferies analyst Omar Nokta in a client note on Wednesday.
For the quarter past, Scorpio’s LR2s came in at an average $42,647 per day with MRs at $29,207, fuelling adjusted Ebitda of $235m that topped analyst estimates of $232m.
Scorpio’s financial breakeven across the fleet is roughly $17,000 per day.
Even with the earnings beat, Scorpio’s numbers were down in comparison to the second quarter of 2022, when the market was still feeling the early impact of Russia’s war on Ukraine.
Net income during that period was $196.1m, or $3.13 per share. Last quarter’s revenue of $329.3m fell in relation to the $405m a year ago.
Read more
- Ardmore’s first-world problems: What to do with all the money?
- Private Scorpio bets on product market rally through Ardmore, Hafnia
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- Streetwise: One year after the salad days, shipping stocks stand at a crossroads in 2023
- Scorpio flips MR tanker bought out of Avic lease in November
