Ardmore Shipping’s deal to acquire six modern MR product tankers for $172.5m has got the thumbs up from Deutsche Bank's Amit Mehrotra.
The New York-based analyst says he views the deal, which will be funded with about 60% debt and the rest with new equity, as “positive from several perspectives”.
“We calculate it is neutral to net asset value, with the increased share count offset by the attractive price paid per ship, but importantly has potential to be significantly accretive to net asset value (NAV) on a 12 month basis as surplus cash flow is generated,” says Mehrotra.
He estimates that the deal is 10-15 US cents accretive to earnings per share (EPS) on an annual basis, with gross accretion of over 30 US cents partially offset by dilution in the base business from the higher share count.
Mehrotra says the deal expands Ardmore’s share capital base, which he views as “an important factor for prospective investors”.
A further positive from the deal, according to Mehrotra, is that it lowers both the average age of Ardmore Shipping’s fleet to four years from 4.4 years.
He also believes that the deal lowers overall breakeven rates, with the net breakeven for the six vessels put at around $12,000 per day versus over $14,000 for the base business.
Finally, Mehrotra says the deal further expands Ardmore’s scale in the product tanker category, which has been a key initiative for management.
“There’s not much, if anything, we don’t like about the announcement, and we’d expect a positive reaction over time following the pricing of the deal which is likely to include some discount.”
