Marketplace Roundtable
Marketplace Roundtable

Episode · 4 months ago

Value Investor's Edge Live #52

ABOUT THIS EPISODE

Welcome to a special edition of the Marketplace Roundtable podcast featuring J mincemeyer of value investor's edge. J first began contributing to seeking Alpha in two thousand and eleven, building up a large following through his work covering shipping stocks, probably about as comprehensively as they're covered anywhere online or in print. Since two thousand and fifteen, J has run the value investor's edge marketplace service here at seeking Alpha. The service offers intensive coverage of deep value opportunities in the shipping, energy, MLP and industrial sectors. You can subscribe to value investor's edge by going to seeking Alpha Dot com and typing j mince Meyer, that's M I N T Z M Y E R, or value investors edge, into the search board at the top of the site. Before we began, a brief disclaim. Seeking Alpha is a website where authors from around the world share their ideas and analysis on the Stock Board. The marketplaces our platform for authors to run investing analysis and idea services so that readers can take their investing to the next level. Nothing on this podcast should be taken as investment advice. And now your host, Jane Minsmeyer. Good morning, everybody, welcome to another iteration of value investors edge live. We're recording the morning of June eight two. At about nine am eastern time, we're hosting Scorpio tankers president, Robert Bugbee to talk about the product Tanker Markets and specifically why Scorpio is positioned to outperform in these markets. Before begin nothing on the call today constitutes official investment advice or company guidance in any fashion. I must disclose I am a short Scorpio vs and puts. So that will be a fun conversation and maybe Robert can change my mind and get me on the other side of clothes. So anyways, welcome, good morning, Robert, thanks for joining us. Thank you running less Jay. Yeah, I appreciate you coming on. It was it's been good to keep in touch with you over the last couple of years. The industry goes through its transitions. Um Product tanker rates are running. They're very strong right now. You just and out a q two Games update this morning, so very timely. Thank you for that. What's the current state of these markets are we are we on it for real ball around this time? Where do you think there might be some more shocking as ahead? Well, it's always likely to be choppiness of one form or another, both up and down. I mean we've had that in all of the bull cycles, the big ones, whether it was in the eighties or the the two thousand's. But I think it's pretty clear that we know we really are in a bull market now. The fundamentals are very strong going forward. For the actual product market itself, you have record low supply, you have the first time in the history of the product market that the actual fleak itself is aging, with many vessels approaching fifteen years, and you have increasing regulatory environment. Along with this Um, you know, really beginning of the changes in in refineries and where they are, where they located. It is resulting in this sort of extra increase of ton miles for products, you know, above and beyond whatever is happening in the world headlined Tomond for products. Yeah, I mean it's certainly been certainly been a lot of demand, that's clear. And also, of course, on the energy side of the business. Uh, you know, the crack spreads and refineries are astronomical at this time. Do you think there's there? There's a significant legs on this bull run? One of the concerns I've had, and I'd love to hear your thoughts on it, are that the product tanker side of the market looks pretty strong, looks pretty good, and I understand all the bullish arguments. But I look at the crude side of the market and I see a significant overhang, especially on the V L CC side. Is that a risk to this bull run or how might that tonnage be be absorbed into the market? I don't think it is. I mean it's you know, for some time now, for well over a year, fifteen months, the product market is shown what it is dislocating from what is a historical correlation between products and crude, and that's for good reason. I mean the you know, there are just many arguments. If you take a country like Australia, New Zealand that used to import crude very long distance, has been closing down its refineries and turning them into product import terminals. Well, that's a direct hit on crude oil to the benefit of products. We're also seeing going forward, we're seeing the Middle East countries, Saudi Arabia, Kuwait, increasing their refinery capacity for export and again that that's that's a barrel for products. That otherwise would be is shifted on the sec the other thing is that the product market, as I said, it's aging for the first time in its history. Many, many ships coming to the age of fifteen years, where effectively they get take and out of the premium...

...product trades. and Um, you know, there's nothing really coming on order, very very little coming in order in the next period, whereas the C C s, the only ways that they remove vessels from their commercial market is through scrapping, and scrapping that have normally come until we get into the plus twenty field. Also, if we look at the you know, the last two years, the product Tanker Fleet itself is more or less remain the same because of this this phenomenon I described and the very low order book, whereas the the CC market has increased quite considerably. So the VC market is very, very sloppy to start with with, as you point out, and Overhang and going forward, compared to the product market, it's demand is, you know, is much more dependent upon actual growth in demand, headlined the motion demanding the growth for crude as opposed to the products. We have this this change of actual trading dynamic going on underneath. And then the last point is the product market is so much more consolidated. The players in the last three or four years of either merged with each other or they have on an asset basis or they have have consolidated in terms of pools. The top five product tanker owners commercially control, through their fleets, plus what they have in their pools, way more than the crude or market, which, you know, we were going through a period where there was a new L C C Company a week actually coming to the public markets. So they're very different now. It's not that it's beyond that previous correlation and the secs can't really you know, they're not really going to affect the product market. They can only take a cargo on the first their first voyage. THAN THE VLCC deliveries of declining and you know this isn't the type of market at the moment that you taking vessels on the crew to store. I mean inventries around the world are so low that there's not that much sense in you know, whatever, how a little lower the VLCC rate would be to take a VLCC and put put clean patroleum products on it for storage. In baquidated market we have, as well as with very low inventories and I'm sure, yeah, certainly makes sense, Robert, and thanks for outlaying all the different reasons why this market is a little bit different and why the VLCCs and even the midsized crew might not have so much of an overhang. There's no historically, if you look back and you use like a Clarksons time series or whatever source you want to use, historically there's been a pretty tight correlation between the two rates. Of course that that you know, the historically has been there but, as I said, you haven't in the present. It's very different from the past. For the actual product market itself, certainly so. One one question I want to ask you related to the strong race. I mean you're firing off cylinders. You also have a high scrubber prevalence in your fleet. You also have fully modern, ultramodern free fleet that has the ECO design, and what's the sort of contribution that you're seeing right now from your scrubbers? I mean it has to be pretty significant. It is, and I think that what we've outlined in our guidance today is, you know, the top product and chartering departments up, you know, all fairly good. So one quarter one will beat one and the other quart of the other the other. But you know it's because we've got these ECO vessels so we have basically less fuel consumption, and because we've got scrubbers that you're really seeing that being expressed today through the actual cash flows. So if you looked at a m you know some of the product. You know right now the current pricing spread on scrub on the lsfo and heavy fuel is in Europe has two hundred dollars of barrel ton and in Singapore is five hundred a ton. So if you use um two hundred spread, then Mrs the discover effect is two thousand five hundred a day in fuel savings on a full round voyage, including the poor time. And on L R two is about three thousand five hundred. And that's at two hundred. And to remind you, Singapore, which is basically the pricing for everything Easter, serves or almost of the market and in the L R twoes case, probably of the market. That spread is five dred dollars, about five hundred, five hundred a ton. Then if you looked at you know the other part, which is the fact that these are modern equo vessels. Very few efficient...

...at present savings Um. You know, you're you're getting another big kick there of something in a way between five thousand to eight thousand dollars a day too. Yeah. Yeah, so you've seen in recent you know, a few recent days, that let's say the West, or well up until the last three days, in the last three days these market is picked up again and it's moving higher. But there was a seven eight days around a Memorial Day, where, you know, the headline rates look as if they were weaker, but for our ships, because scrubber spreads and bunker prices were going up, our actually underlying earnings weren't changing that much during that period. Yeah, that's a very good yeah, I saw your recent games and you just put it out this morning and of course I just use a quick sell file. I'll say I don't know if my calculation is a hundred correct, but it looks like if I take your q one guidance that you gave about six weeks ago and then I compare that to the update you gave, it looks like the implied rates in the last six weeks or about forty six thousand for L R two S and about thirty eight thousand for the MRS and handies. Does that sound reasonable? It does. Yeah, yeah, and is that? Is that kind of the current rate as well? Or do you think we're higher than that now? I would look. So it's very it's all over the place. When that in a weird place with no some routes, TC. One doesn't show that. Well, but anything to Australia is fantastic. But you know, I but those, those rights are sort of fine to use at the moment. Yeah, well, plus minus anything on any day. Yeah, I was. I was really impressed. Of course I have access to all the benchmark rates and then with Clarkson's and miss value and Baltic and all that, but I was really impressed, especially by the Mr and handy before. I mean thirty eight thousand dollars Um, you know, implied the last six weeks, is just incredible. So congratulations to your chartering department for for pulling that one off. I think that's that really speaks volumes. Just to circle back on the scrubber spread. Uh, you talked about two hundred dollars a day, of course, on the western part and five hulls a ton in Singapore. Um, I'm getting about six thousand dollars per day for Mr Premiums and about eight or nine thousand for L R twos. Is that sounds right? I mean it's a huge discrvers. Yeah, that can be a that can be about right and depends on on the place from the voids right. Yeah, yeah, definitely, definitely significant. So, but it's huge. It's absolutely huge, and that's that's probably you know what what you're seeing coming through in UH, in our results. Yeah, certainly so. Earlier this year, late last year, early this year, there was some analysts out there, myself actually not included, who were worried about your liquidity and and that sort of thing. And you know, once you did the vessels else, that sort of nipped that in the bud right that that got rid of the liquidity argument. Of course, cash liquidity. But now you're free cash flow coming in. I mean q two free cash flow is going to be significant. That should be pretty obvious to anybody. Um, what, at what point can we turn the corner on the balance sheet and start looking at Cheryl's returns? Is it going to take a couple of quarters to to do that, or is there in short of timeline? Inline there there's not really a timeline right now. I mean the change is happening extremely fast. The company has been focused on, Um, a couple of things in this last three or four months. Has Been focused, firstly, on maintaining its operational integrity with what's going on with Covid, what's been going on with Russia and Ukraine, Um, and actually having a trading desk change and adapt. Two, all the new markets and the new opportunities. We have taken the view on the on the balance sheet. You know what, we're happy to pay down debts here and there, UM, and otherwise it's to sort of collect the money and then see where we are after that. The first sort of goal is, you could see from the figures there was too um. You know, you've kind of if you, if you imagine your sales are being done, you you'd like to end the Doom Sardius with, you know, playing down five million dollars in debt and having five million dollars liquidity Um, and if you acted as if the ships have sailed. Well, you know, we're clearly on target or over over that target. The five hundred isn't necessarily scientific. It's almost two years of principal payments put in...

...your pocket and I think that then you would you would sit there and early September you we would have a board meeting and then we would start to properly look at capital allocation. So I can tell you at the moment is what we're not going to do is we're not going to order ships, we're not going to buy ships, we're not going to acquire companies Um and we are until that point in September we will be very happy to pay down debt. We will probably exercise, even as early as this month, our first ability to buy back some of our more expensive, least finances. So we will almost certainly Um just you know, pay cash to exercise what the purchase option is there hold those vessels is debt free m through tell September October. I think it's very important for we would look to do commercial finance, commercial finance bactors to lower the debt cost Um and replace some of these more expensive leases going forward. But before you start to approach and negotiate with the lenders for a commercial debt finance, the better thing would be to have the company have a trailing twelve months Um net income in its auditors and reported accounts. As as the commercial lenders and backward looking as a opposed to forward in their matrix is. So that's really all we'd be doing between now and, let's say, September. Yeah, that that's that's certainly makes you beat me to my follow up, because I was going to ask about the leases, because I know, you know, score feel pivoted into some of the Chinese leases and alternative leases I have, you know, as a way to increase leverage in the past, and I was just wondering how quickly those could come off. So you said you have a handful that have options coming up later this year. How much of that is as a percentage of fleet? Is it just a couple of vessels, or is like a dozen? Or No, no, no, that that they rolled through the period. Some we already have options, others you know that they all have options and the fleet, Um, it's just, you know, you have to probably a year or a year and a half for all of them, although we probably wouldn't need want to exercise all of them. It's just that some have Um, you know, there are some that we only there's one set of six seven vessels that we only have a chance to declare that option once a year and that would have to be declared in June. That would be the reason for that. Okay, that's that's helpful. Color. You mentioned that there's no interest at this point in buying more vessels or emerging or do anything like that. So that's I think Cheryldon will be happy to hear. That is. Is there any interest in potentially selling a few vessels like you've been doing? Not, not in terms of for the reason of shoring up the balance sheet. To think the balance sheet, you know, just on what we've announced today is, you know, it's kind of done, it's it's it's short, ut, et CETERA. Um, you always hold the you know, with it was a fleet of, you know, fifteen hundred eighteen vessels, post sails, and you're always going to the right or the ability to do the sensible thing, which is in the market that's rising. Um, you know, even we have vessels that are, you know, built two thousand and fourteen now that, you know, eight years old. And then there may be pricing points relative to Um, you know, n a V or whatever were. The smart thing to do would be to sell for or five of them and use use that cash to buy backstock. or or just sell them because you think that the price you're getting is a fantastic vice for the sake of the balance sheet. No, I wouldn't expect. They're not presently discussing the sales of anything Um and I would not expect this to do. That makes sense, of course, better to position yourself from position to drink there. I think that's certainly makes sense to yeah, last question on the balance sheet. Obviously we talked about the leases. We talked about some of the timelines...

...of that and potentially having a few unencumbered ships and higher trailing even died and net income to help with the refinancing. Is there an idea or a target in terms of net debt to assets? I think currently you're in the low fifties. Is there? Is there a target in mind, or is that sort of a moving target? I think that's a very interesting question and something that, you know, we are presently going through and discuss discustomers ourselves, and it's an interesting thing in the sense that often we take some criticism because people think that we're more leverage and our piggots. But one way of looking at leverage is you should look at leverage and the whole, you know, in a more holistic way, which is to say, well, what is it? What is the Lever John, and the leverage and a fleet is on the most modern fleets in the world with scrubbers, with ECO vessels, and so you can see in these earnings that, any give and point in the market, our cash flow per vessel is higher than anything else. So logically we should be able to carry more depth than our competitors. That's sort of one thing because, you know, you can see the difference, as you pointed out, five six, seven, Ten Tho dollars of a eleven thousand dollars of a difference just by the virtue the actual specification of the ship. You know, that's three point five million dollars. That's that's way more than the than versus double the interest cost of the vessel itself that you're getting for free, as it were, compared to your competitor that may have marginally less percentage of net debt but is running an older, less efficient, more fuel first the vessel. But having said that, intrinsictly you do want to move to below fift that's a you know, even below fifties the asset values go up you're probably, on a navy basis, going to be at thirty five or forty. But your your first task. You should try and get below on your net debt to equity. That will ultimately give you your best commercial lending terms under the metrics. So that would be the the first target, as it were. The rest of the targets are going to be very dependent upon your allocation of capital strategy, which, I said, we're not really ready to to look at, to discuss right now. Yeah, you know it makes sense and of course you know higher leverage is a good thing when the market is rallying right so the bottom and top, but I know it makes sense. Um, you know, I know you said you're not ready to get too firm on the dividend yet. So you know we can. We can skip this question if we have to. Um, but I'm curious on your thought process because a lot of your peers in the industry have already started moving, not so much product tankers, but we've seen it in dry book where they're doing these variable dividends and it's, you know, part of free cash flow and all that. Um. Does that model appeal to you? Do you think Scorpio would would be interested in doing sort of a free cash flow payout percentage like some of your peers, or are you more interested in like a fixed dividend or special dividends or something like that? Um. Again, I'm not sure you know that. The last cycle you had a period where there was only one company, or two companies really, that traded a to above an a V, and that was, you know, front line and a t that virtually had full, full payout dividen policies. Um, we took the view in that cycle too, you know, buy back as much, said as we could and then when we saw that the forward price required, or charter rate required to justify where the stocks were at that time, we, you know, we sold the company. Um, I'm not sure that you know the first the first thing is is that, you know, it's so far away at the moment, because we're so discounted from men to an e V, that right now the calculation is easy. Right now, you would want to spend, you know, every dollar on stock buybacks as opposed to paying out dividends, whilst the discount to any V is is there at the moment being so wide. That would be the theory of it, but of course that contains, because if we start to take the bet down, if we start to have two three quarters of great earnings, then yeah, that an e V is probably going to tighten up anyway.

But that's why we just have to wait think about that a little bit more. If the logic there makes, makes total sense. Um, you mentioned something interesting. You said you're trading well below N A V and of course different brokers have different values, different sources have different levels Um and of course it depends how much scrubbor premium include and whether or not you include performer q two cash flow or not. Obviously there's a lot of different differentials, rights as wiggle room, Um, but can you give us an idea of sort of internal company estimates or calculations? Where would you place your nap roughly? I mean arrange is fine. I know it's moving target. Sure. Well, I think the first thing is that we do use the cash flows we've generated, because that's what our NAV is. We understand that an IT's can only use not study one number, but that Bud defination is flawed. When you can, you can see what the company is actually earning and generating, and they know that's right there book in front of Your Eyes. That's tremendous. The second thing is is that when I do any of these, I do it on what I know vessels are being negotiated for at the time. I know what the bids are out there and what has happened in the last two months or so, since analysts, Um, you know, and brokers, of course, the backward looking to, I mean Clark's, has only updated there their vessel values, not when the security side wants to but when the actual shipboking side decides. Look now the values need to be updated. So they're always going to be values from analysts on. Ships are always going to be behind the curve, whether it's a rising market or a falling market. So, Um, what I'm looking at now is also of a sale and purchase market's reacting to the time choldter rights, the time chold rights and moving up. We're now able to get three year time, Charlie Ah. You know, there are lots out there trying to be you know, childer is trying to get them on modern and Mars on a lot twos and those shot as themselves priced at the point that are going to raise them, you know, raise the values of of the vessels too. So if I add the cash flow plus what I think the earnings are in the market, then we are already broken, you know, forty five when we're moving upwards. It's interesting proforming calculation, obviously, you know, using broker values and of course you know point taking those very um I definitely have you in the mid thirties. But I can see what you're saying in terms of if the asset values are moving up and sales can be done at those levels, then yeah, there's certainly more headrooms. So thanks for that. I think that. I mean and and and another way to look at it is that right now, you know, we know the focus reported that you can get three years at twenty one thousand day neck on them. Are Three years at twenty eight thousand neck on a Um on a a lot too, and that would give if you put that across things fleet, it would give sting ten dollars a share in cash at twenty five thousand. So you know in the market's not twenty five, it's higher on the spot market. So there are many different ways you can get to evaluation. That is, you know, in our opinion, and I fully granted that it's in our opinion with the information that we have, you know, in at least the mid forties. Yeah, thanks. Thanks for the color, Robert, and it's really helpful. Um. Look, one of the interesting things about Scorpio, I think at least. I mean, kind of one of those love it or eighted things, Robert, you know I had to ask this question. Um, a lot of shareholders love it. Maybe some shareholders are are uncomfortable. Um, but you've bought a lot of call options in the stock and that's more unusual because usually an executive either just has their share of rants or maybe they've gotten buy shares. You've bought call options in the past. Um, but whenever you you know, whenever you buy them, they're on the website. Right. There's a press release, but it's harder to track. If I wanted to copy you and I want to be like, I'm gonna buy when Robert Buys and I'M gonna sell and Robert Sells. Um, that's been harder to do right because of the paper filing. Um. Is that going to change going forward? Is there going to be an electronic system? Now I think there's some sort of at you trust electronic systems, since much not to have last year. I mean the they so whatever you do, it's an inside of the first thing you have to do is if I wanted to sell some options today, for example, I would have to first get permission from,...

...obviously the company Um. I would then have to sign my form for for you know, the filing. That would then have to go through my banks compliance department, the options or would be sold and then they would have to electronically file out. At the end of the day, electronic filing is a is a public filing. So I don't the only difference is is that is that there is no filing as a foreign um user for purtases. So the reason why the company. It's not me. I would be quite happy to do it all in secret, right, I mean none of you are paining you to follow my purchases or sales. So, you know, unless I was willing to start and have a subscription for that, then I prefer everything in private. But the company says, while we're going to make it such that we're going to because the stock market announces the the SEC announces the sales, where we're going to announce perpetses Um. Yeah, it's a very, very interesting take. I know it is is unique to Scorpio. At least recently it has been unique. But it's it's okay, but it's unique in many different ways. First of all, it's very uncommon. I never used to buy options in O am I, and that was because the Oh am I was not a foreign fighter. Now it's a foreign if you're not a foreign fighter, you are crazy. It's really difficult to buy call options because you're not allowed to do the opposite trade within six months. And whereas if that's why you don't see many executives in NYC companies or NASTACK US companies by call options because of that reason. So we have a policy where no one is allowed to margine their stock one but we, as a foreign fighter, are allowed to do the opposite trade within a six month period, which now opened up the ability two buy options. And that's why. You know why you see it, but you still tour, t try and actively use the options markets in in frontline, for example, in the last cycle. But I just happened too, and I don't do it all the time, I just happened to think that you know the value. Why do you play on options? You do it because you're you're greedy because you think the upside is so compelling that you want to have more of that trade. So that's why I do it. There's any one reason why you buy options. I would really caution people anyway in following selling, because there are thousands of reasons why someone sells and it's not necessarily because you have a bad view of the stock. Yeah, that's a that's a good point. On on the leverage, I mean I'm very familiar with options, so definitely, definitely there. You can run out of time. I had to sell some options, you know, a few weeks ago, unfortunately, because you know, I was running out of time on those options. Yeah, no, certainly, you have to get the time right. You've Gottat the movement right. You've got to make sure you're not overpaying for the implied volatility. So yeah, thanks for thanks for dressing that, Robert. I know it's it's the options trading is a love it or hate it. I know there's a lot of people we're not getting overall nowadays, we just don't get much complained about it. We had one analyst is making a big fuss about it, but we have never had a shareholder complained about it. Because fundamentally shareholders like the idea of their executive backing the company. That's it's definitely it's definitely unique here at least it's interesting. So, you know, Robert, I want to pivot a little bit. We had a couple more questions and I want to talk about Nettie a little bit as well and how that ties in. But I want to neatly kind of tie up the Scorpio stuff first before we get there. So, Um, the last pitch. I wanted to, you know, give you a chance as we wrap up on the Scorpio side of things. Why should somebody buy Scorpio tankers as TMG versus, you know, one of your peers, right, there's, there's are more, there's half Horn, there several. Why? Why have I Scorpio? So this is my chance to be interventionist and you'll put in sting uh so, first of all, you should buy Tom half now and any of the well run product tanking companies.

You should be a buyer off simply because the fundamentals are so strong and all of what we talked about at the beginning. So I think that it would be wise if, if I were giving in lessment advice to anybody. Yeah, I would. I think it's wise that you know someone has a basket. I mean we all know that tanker starts or dry bus. One day the fashion is one company, the next the other. They're very hard to which is why I don't think you should ever do a pet trade within within group, within the same sector, top four companies. So when you should buy those those companies. What I would say with Steing, but it's different, is, first of all, the liquidity. So many institutions to put a position on the product market would find it much easier to step into a company that's trading fifty six million dollars a day then stepping into a company that's trading four or five million dollars a day. So first you have liquidity. Second, Um, you know you have leverage. You have, if you believe in the trade. Right now it's kind of good because you have the operating leverage of size plus the operating leverage of scrubbers and Echo, and you have the financial leverage at this moment with the debt being in there. But you know every day the quality of that investment is getting better and better and better because your leverage is coming down. So the irony is is the one criticism that you've had that you pointed out earlier. A couple of people have criticized us for having too much leverage. Every day is coming down. So here you have the opportunity's clear visibility that the one thing against the company is being eliminated every day, whereas the competitors must still stay with their less efficient vessels. And that would be my, you know, my simple version summit. All Up, you abolished on everything, product ankers, but you're going to get the most bang for your back with Scorpio in certain well, I didn't quite say that. I said why, why you would do Scorpion? Why, I think you would do to Scorpio. They're given times that things can happen. I mean you, you know, if you take Tom do at the moment, Tom could do great because it has a small float, because it has a small float, but it could also have trouble. You know, what I watch every day is what those, I think those p you guys are going to do, because we saw in dry cargo that there are times that the pe guys decide they need to sell and then its stock will trade sideways whilst they're clearing that position. So if you're looking at Tom you have to say when Ist treually going to start taking the money off the table? And that's seventy five percent position. If you knew they won, their lack of liquidity would actually help you in the tribe, for example. Yeah, that's a that's a really good point, really good point with torm and we've seen that in some of the other companies that there was, you know, international seaways had an overhanging ardmore had a previous overrank. So we've certainly seen that in the past. Um, it'll be interesting to see. I mean oak tree is also very long, of course, on the dry bulk side, with with Scorpio or, excuse me, with starball carriers, and we haven't seen that selling yet, but we'll certainly have to watch it. So, Robert, thanks for talking today about Scorpio tankers. I did want to ask you a couple of questions about Nettie, if that's okay. Is it? I know we didn't really COO. Okay, I want to make sure we we didn't really coordinate that beforehand. Um, the first question for an Eddie and I think it segways well. It overlaps with Scorpio is look, Nettie is a pretty big shareholder in in Scorpio and Scorpio shares have done really, really well. UH, Nettie shares a trail significantly, so that there's some sort of arbitrage or there's some sort of disconnect going on there. Is there any appetite to close that arbitrage? Is there any appetite to sell those Scorpio tanker shares and do some sort of Nettie we purchase or anything you can do there? UH, well, firtival, there's no appetite to sell the Scorpio tanker shares because we believe, you know that, that that we believe that's significantly on the value and that they there's no reason why they shouldn't continue to move higher. Ah. Secondly, it's hard to do. You know, the simple aprtrage, which is yeah, sell, the mathematical point where you sit there and go well, yeah, I could get a lot of buying Netti back at Nav if I sell steam. The difficulty is is that neck you still needs to finance it's two new buildings change to the...

...two new buildings in Daiu. So, although netting doesn't need to raise any cash or anything, it's fully funded. In terms of the equity side, you know you're wanting what you're going through that period and certainly, and tell the vessels are or the first vessel is announced and fixed. Your greatest attribute in your financing is your balance seat itself. So if you start to Um you know self, thing says use the cash, buy backloads of stock, joints the market cap, use the goody. That way probably not the best way to approach commercial lending negotiations. So you can't really you know that arbitrage at this particular point is not available. That is something that could available later. You're just saying because otherwise it's just be a one way sale. You would sell the Scorpio tankers and you have cash, but you couldn't do anything. That's correct. Yeah, it's interesting to think about. Is there a sort of mechanism in there if in the future, right I understand it, it sounds like it's not going to happen today just because of the timing of everything, and in the future there is even the present financing. You know we could. We could even the under the present position. We could still buy some shares in netting in any way. To finally it's going to be tied to, almost tied to profitability, and you know that's a profitable company. And even where, even where sting is trading, obviously it rewrites the profit. It is much more in terms of you know, you're sitting down with a lender and you're saying to two lenders, look, we'd like to look at, you know, putting on the up sports fly ance, on the new buildings, etcetera, etcetera, and you know this is a great asset we have on the balance sheet, etcetera, etcetera. And it's not confusing if we started to buy back shares without having fixed one of one of the first vessel out on time charter or during the finance m if you were a lender, it's going to make it harder for you going through your committees. Right, the company's buying back stuff. Yeah, I can definitely see the optics on that, especially from the map. That's not really looking at the whole picture. Speaking of that, I mean that's gonna give you a lot more flexibility when you have those contracts fixed. Well, what sort of timeline do you think it is reasonable for that? I mean we're talking about we're we're consciously not discussing that because we don't want to look we we own you know, if you have the sus saids plus insiders. We aren't recent of the company. This is a a, you know, a longer trade we have to Wik very conscious of. But this is a Sony market now in the S G book space. It's not a, you know, a promise. So we don't want to say well, you know, by whatever the third court do, we expect to have the first contract or by November or by whatever date, only to have that delayed. It would be much better to have a little bit of patients and not sort of have to stock trading on hope or expectation, but just to announce the stuff that we've done. All right, it sounds like I'm not gonna get it. I'm not going to get that color that all, but now I understand there's a lot going on behind the scenes. Is there any other way? I mean there's it's pretty obvious, um, that nattie trades it a significant discount to its peers. You don't have is probably not the rate. Maybe component to use for for this sort of market is sort of industry, but significantly discounting Nav um but of course there's not a lot you can do at the moment right that the contracts aren't quite ready. They're financing is tied to those contracts. SS, the Private Solide, the Holding Company, is being yeah, there's been just steadily increasing it's holding. That's what we've been doing. Yeah, which, of course that leads you towards, you know, the privatization route. But is there anything else that can be done besides besides that? I mean it is their natural route. Just SSh keeps buying more shares and then eventually, Um, you do like the gas logs and herbs and you go private. or I mean, what's the what's kind of the national or the rational outcome of this? I think the rational acome is the company actually executes. I mean I just've never seen companies prices not go up or down ultimately commence. You the you know their actual operating performance. It's nothing. It's...

...not essential to us that the stock is trading perfectly today, right, but what's essential to us is to build a sense of credibility that we will have a better evaluation in the long term if we don't make promises. We we literally quietly carry on doing executed and in time. It will come through. Now, in the meantime, what's the risk? In the meantime is the risk that one of the other players says, wow, you're undervalued, I'm going to offer to buy you right, which is now. That's not exactly a big downside risk for a shareholder, is it? Well, yeah, it depends when they bought and what their expectations are for for sure. But one one last question there. So a few years ago there was an opportunity when Scorpio tankers needed to raise funds where Scorpio balkers at the time, which is now Nettie, was able to participate in that follow on secondary offering. Um. Now that Scorpio tankers is, you know, as surgeon cash flows and that's clear. And obviously, you know, delivering the company, stabilizing companies priority number one. Right and I would imagine childhold the returns are also a very high priority. But is there a scenario, is there a reasonable case where Scorpio tankers might decide to take some of that cash and buy Nettie at such a large discount? Is that a reasonable arbitrage or something you could do there? No, you wouldn't. You wouldn't. So many things that have wrong with that. Um, they I mean we we really really need to have, you know, it sting perform and there's the opportunities. I mean, this is the mean, I've never been in a company, you know, in either of these boom cycles that's so primed this things right now. I mean it has no Capex out there, let zero Capex, has done most of its dry dockings done inscribed. It doesn't have a new building order program it has no record need to get more ships, it has no need to renew the fleet. So it's just like completely clean and it's, you know, the top of the tree inside of the market. That is, it's really expanding at the moment and growing in terms of its demand beyond the headline demand for world products, as we've dixplained. Against a record low order book versus a new building deliveries the way out there. There's there's no yard capacity anywhere and people will hesitate to order as well because they don't know what combustion is. And insiders and management. I mean, this is just a you know, in my career I haven't seen anything as is clean at this point in the market ever, and you know, we are as you pointed out, we are very, very, Um, motivated as a management two make sting work. Yeah, thanks, thanks for that color, Robert. It's I was curious if there is any chance for an overlap the next that's next. You doesn't need any cash and we ourselves are buying you know, we ourselves are buying it. I mean, this thing does great and the tanker market does great. Well, yeah, maybe we might take it private. Who knows? It will be interesting to see. I mean that these valuations, if you are abolish, of course, on that segment and if you believe in the potential. Um, you know, I don't personally cover Nettie. I don't have a formal opinion on on, you know, where it should trade exactly, but I mean I can look at you know, I can look at the values of the comps and see where they trade. I totally agree that the you know, they're different. There also a public company. It's, it's, it's. It'll take one way or other. Either the competitors will are about the difference, or the market will give credit for if the company executes on its strategy, or the insiders will at some point have an overwhelming position. One of those stories. I would say is the it's a root forward for that company, but that does require patients, right, because I'm openly saying to you there's not much we're going to do in the meantime. Yeah, you know, I think it makes sense.

I I think I think both you, you can say both Scorpio tankers and Nettie is ultimately gonna be about execution. But of course Scorpio tankers the executions ongoing, right, and Nettie is more like a year or two from now, right. Yeah, and I do appreciate your interest in staying and a good thing about being if you've if you've gone to people have gone short, where they buy both. Put to say, I like those people because they they're the only natural boys that can guarantee over the future. Now it's it's always good to have market participants everywhere. Right. Liquidity is important. That's what it's about. Yeah, absolutely. Well, on a day like today and shipping, it's good to have a balanced portfolio, that's for sure. I don't know if you looked at that, at the stocks, but it's a crazy day. But anyways, Robert thinks again, it's always a pleasure to talk with you and I appreciate you joining us this morning. Thank you very much. But this includes another hitteration of value investor's edge live. We just hosted Scorpio tankers president, Robert Bugbee. We also talked a little bit about and Eddie Uh Stock smoll N E T I. As a reminder, nothing on a call today constitutes official investment advice or company guidance in any form.

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