How’s this for a plot twist? New York-listed Scorpio Tankers — long fighting a perception that it might need to sell stock on the cheap to get through a bad market — is now being tipped as a buyer of its existing shares float instead.
That is the take of at least two analysts who have weighed in with positive reviews of Scorpio’s latest steps to boost liquidity near the $480m mark overall. The centrepiece of the strategy was the sale of 12 LR1 tankers built in 2015 and 2016 to competitor Hafnia for $414m.
Both Randy Giveans of Jefferies and Gregory Lewis of BTIG suggested that buybacks might be in the near future, considering that the Emanuele Lauro-led shipowner is now in solid shape to survive the rest of the market trough but seeing its stock trade at barely 50% of net asset value.
“Given the company’s increased cash position, we would not be surprised to see the company opportunistically (think sharp discounts to NAV) buy back stock in a rising rate market,” Lewis wrote in maintaining a ‘buy’ rating on the stock.
Giveans added that he believes the company “should/will” repurchase shares as the market recovers this year.
“Currently, shares are trading at about 50% of NAV and represent a great use of cash, especially if management is confident in the pending market recovery,” he said.
Jefferies is also keeping a “buy” on the stock with a $24 price target.
While not raising the issue of buybacks, a third analyst — Jonathan Chappell of Evercore ISI — also delivered a positive review of Scorpio’s strategy.
“The benefit of the vessel sales cannot be understated, as the proceeds effectively remove any near-term liquidity overhang that could persist if the product tanker market recovery continues to get pushed to the right,” Chappell wrote.
“[Scorpio] now has liquidity of $488m, and even the worst of cash burn environments would take several quarters to eat away at this buffer. Thus, the highly feared equity dilution negative catalyst is now off the table.”
While Scorpio faced liquidity questions on multiple fronts over the course of 2021, the loudest voice came from Deutsche Bank analyst Amit Mehrotra, who warned clients off the stock on what he considered the probability of a dilutive fundraiser in the coming months.
