American Shipping Co (AMSC) could follow up a huge new offshore vessel investment with more diversification deals, analysts believe.
The Oslo-listed owner has 10 Jones Act product tankers on bareboat charter to Overseas Shipholding Group (OSG).
But this month, AMSC branched out into a new sector by spending $157m to buy the 177-loa offshore construction vessel Normand Maximus (built 2016) from Norway’s Solstad Offshore.
The ship will be chartered back to Solstad over an initial five years.
Clarksons Platou Securities believes this first non-Jones Act investment marks a new direction for AMSC.
“The transaction appears to be beneficial to shareholders, with the company forecasting a return on equity of more than 20%,” analysts Frode Morkedal and Even Kolsgaard said.
The acquisition is intended to be funded with 70% debt and the rest with cash on hand and new equity.
The investment bank believes the company will have no trouble raising the remaining $25m.
“Although the company has not made an official statement about its future plans, similar opportunities should be expected,” the analysts said.
“We see this diversification as advantageous because it could increase earnings and dividends while reducing exposure to a niche market, which should support improved yield pricing.”
Tankers to find new charters
Three of AMSC’s product tankers will be returning to the company at the end of the year after OSG declined to renew their charters as it evaluates new, decarbonisation-related trades.
When oil demand fell due to Covid-19, the Jones Act tanker business, which had previously been the company’s only exposure, suffered a sharp decline in demand, Clarksons Platou explained.
Rates fell, making the market more difficult to operate in, and OSG had a difficult fiscal year in 2021.
But Morkedal and Kolsgaard argued that the trio will most likely roll on to new contracts, as the Jones Act market has recently recovered, owing to a stagnant fleet and a revival in US shale production.
The cash flow generated by the tanker business should be sufficient to support the current quarterly dividend of $0.12 per share, they said.
Dividends could rise
“We argue that the Normand Maximus could increase dividends by $0.14 per share per annum, increasing yearly dividends to $0.57 per share,” the analysts said.
AMSC chief executive Pal Lothe Magnussen said in the first-quarter report: “The current activity level in the Jones Act tanker market is strong, with continued positive market outlook.
“We are confident on securing new contracts for the three vessels redelivered to us towards the end of the year.”
And he called the Normand Maximus deal the “first step towards growing our fleet”.
Net profit hit $8.8m to 31 March, from $3.9m a year ago.
The earnings were boosted by a gain on interest swaps.