New York-listed Teekay Tankers – which was known to be in pole position for the ships – saw its shares nudge up on the deal that was branded “bold”.
Amit Mehrotra of Deutsche Bank said the arrival of the additional ships has significant implications for future earnings power.
Should the strong market be sustained, Mehrotra projects the new tankers will contribnute $120m in core operating profit annually.
The analyst said the figures translated to $850m of additional enterprise value and around $2.50 per share for the stock price.
“As such the deal has the ability to create a significant amount of value for existing shareholders if the current strong market is sustained, and we credit management for utilising a diverse mix of funding sources as opposed to over relying on its strong share currency.”
Dividend driver
Jonathan Chappell of Evercore ISI said perhaps the most important part of this purchase is that it may accelerate Teekay Tankers’ shift to a more robust dividend policy following 10 quarters at $0.03 per share.
“Indeed, TNK generated $0.46 per share in free cash flow in the first quarter of 2015, thus the $0.03 per share payout appeared paltry,” he said.
“Management indicated that it would like to de-lever before changing the policy; however, with the overall leverage barely changing with this transaction and the cash flow potential now much greater from the larger fleet, we believe a more robust dividend could be forthcoming by yearend.”
Ticking many boxes
Noah Parquette of JP Morgan said the there was a lot to like about the transaction.
He said the purchase price was reasonable, especially for a full fleet acquisition, while the October delivery was favourable and the average age of the Teekay Tankers' fleet would be reduced.
“The principal near-term risk (pun intended), in our view, is overhang potential if Principal wants to sell its $50m shares,” he said in a report.
Shares in Teekay Tankers were trading up 1.25% at $6.195 each at the time of writing.
