Ardmore Shipping has the capacity to digest a 10-ship deal and is actively looking at assets as they come along the sushi bar conveyor belt that is the sale-and-purchase market.
New York-listed Ardmore is in the process of picking off a Japanese MR products tanker in a deal that could serve as an appetizer for another round of growth at the Cork-based shipowner.
Tony Gurnee, chief executive of Ardmore, faced multiple questions on the company’s appetite for growth on its third quarter conference call following its first purchase since the summer of 2016.
“Well, I'll make a slight joke about this and maybe I shouldn't,” Gurnee said. “But when you go to the sushi restaurants with the conveyer belt, that's a little bit what it's like investing in our business.
“Things come along. When you look at it, and you deciding to take it off the belt or not."
He says the new purchase will generate a 30% return on equity at mid-cycle rates "so we took this one off the conveyor belt".
Moving on exceptional deals
As TradeWinds reported yesterday, Ardmore has a deal in place to buy a 2008-built Japanese products tanker, subject to financing.
While Ardmore did not name the vessel involved, shipbroking sources suggest the tanker is the Challenge Pearl (built 2008), owned by public Japanese owner Kyoei Tanker.
Gurnee said on the call the ship had been secured at a compelling price, 30% below its newbuilding equivalent level.
He says the one-ship transaction is “arguably not a needle mover but we believe it does have the potential to create meaningful value”.
Gurnee says Ardmore is constantly on the look out for good deals and “when we see exceptional deals, we feel like we have to move on them.
“So there are further opportunities that are comparable to we think to the one we just did,” Gurnee said.
“There might be other largest scale opportunities that we have to balance out against maintaining our financial strength."
Active screening
He explains the company could “probably add another 10 ships with fairly nominal incremental overhead”.
Noah Parquette of JP Morgan says while another one or two older ships purchases are possible, he does not expect any significant acquisitions from Ardmore without an associated capital raise at this point.
Pressed by Ben Nolan of Stifel on the pending deal, Gurnee says Ardmore screens virtually every second hand Japanese ship that comes out for sale.
“The condition of the ship is critical,” he said. “That has a big impact on OpEx. This one is not only identical to the other two that we owned but it's also in the same condition. Those are the two ships [that are] arguably the best of performers in our fleet.”
Magnus Fyhr of Seaport Golbal says that while Ardmore’s target buy is almost 10 years old it has been secured at an attractive price.
“Ardmore plans to do an eco upgrade, which would enhance fuel efficiency and result in additional cost savings,” he said.
