Clarkson Platou Securities believes Euronav will create more value for shareholders through buybacks rather than dividends.
The Norwegian investment bank has been brought in by the Belgian tanker owner as its independent broker for the repurchases, which could see it snap up 10% of its stock.
This week the company acquired shares on both the New York and Brussels exchanges in deals worth $28.1m for 3.38m shares.
The company now owns 8.32m — nearly 4% — of its own shares.
Clarksons Platou's managing director of research Frode Morkedal said that given its low leverage — an estimated net loan to value ratio of 36% — and high liquidity of $1.09bn, the company has plenty of flexibility to conduct buybacks.
Euronav's capital allocation strategy is to return at least 80% of net income to shareholders per quarter, primarily in the form of a cash dividend.
However, the company has set "will always look at stock repurchase as an alternative if it believes more value can be created for shareholders".
VLCCs undervalued
Clarksons Platou's current net asset value estimate is $12.95 per share, against a closing price of $9.16 in New York on Tuesday.
A new VLCC costs $94m on the water today, whereas Clarksons Platou estimates the trading level earlier this week of $9.06 per share implies a value of only $71m in Euronav's case.
Morkedal added that Euronav has large value not directly tied to the tanker fleet of close to $800m, reflecting a large cash pile.
"In other words, a large part of the NAV is made up of cash-like assets that, when included at full value, implies the tanker business is heavily discounted by the stock market," he said.
"We see buying back shares notably more accretive than paying out all as a cash dividend, which the stock market is not willing to price in fully due to expectations of lower earnings ahead."
Earnings per share to rise
If Euronav used the full buyback authorisation of up to 10% of outstanding stock, Clarksons Platou forecasts earnings per share could reach $1.71.
In the first quarter of 2020, the shipowner made a huge net profit of $225.6m or $1.05 per share.
Euronav stressed that it is using net profit for the deals and its liquidity will not be affected. It is retaining 20% of earnings.
The tanker company needed three shareholder votes to gain permission for the repurchases.
Investors had first rejected a plan to buy back up to 20% of its stock in March.
This prompted Euronav to reduce the capital return scheme to 10% to address shareholder concerns ahead of an April vote, which it again lost.
The tanker owner has said the scheme will not be used by the supervisory board as an "anti-takeover defence".
