1. Most companies do not want to shrink out of business
2. This means old tanker Companies WILL renew fleets.
3. When you renew you buy at 100% of NAV
4. When you sell old tankers the payment is not material.
5. Means 50% NAV in old Co is not worth much. Will be diluted upwards.
2. This means old tanker Companies WILL renew fleets.
3. When you renew you buy at 100% of NAV
4. When you sell old tankers the payment is not material.
5. Means 50% NAV in old Co is not worth much. Will be diluted upwards.
The best example of this right now is Teekay Tankers $TNK imo. But it is a general rule. The fan club of $DSSI also called for divs and buybacks before that hope was crushed by management. In the DSSI case you also have too high leverage vs coming losses, debt level, fleet age.
HOWEVER, a cheap NAV valuation in an already renewed fleet is a gift. The renewal is already done and the material part of the cashflow is only likely to go to scheduled amortizations & return of cash when times are good. For the old tonnage it all goes to big amortization
(yes lower debt levels but less economic life left). So when tankers turn up you basically choose between a (ECO) company that will do dividends or a (old lady non ECO) company that says "yes div.. but you must understand we first need to do fleet renewal"... Low interest rates
and ongoing environmental focus only sweetens the deal to choose the companies that already has done the (ECO) renewal.
Important to understand that profits are shareholder capital, basically same as raising capital. It is dilutive when you are trading at 50% of NAV like $TNK and use it to buy ships at 100% rather than dividends like a company that has already done fleet renewal can.
