Style Drift: The Cost of Teekay and Scorpio’s Foray Into Other Tanker Stocks
What should a public tanker company do with its excess cash in today’s market? The answer for two prominent tanker companies: invest in other publicly listed tanker companies.
Crude tanker owner Teekay Tankers (NYSE: TNK) is using its excess cash to acquire a ~[5]% shareholding in product tanker owner Ardmore Shipping (NYSE: ASC).
Product tanker owner Scorpio Tankers (NYSE: STNG) recently acquired a ~7% shareholding in crude tanker owner DHT Holdings (NYSE: DHT).
For investors, recycling excess cash represents a clear style drift, straying from the core thesis that initially attracted them.
TNK and STNG investors likely bought in because they believed in these companies’ ability to generate strong returns in the crude tanker market and product tanker market, respectively.
Instead, TNG and STNG are morphing into quasi-holding companies for other shipping equities.
TNK and STNG’s unconventional capital allocations raise the question of whether management teams are truly being strategic in making the best use of capital—or are simply looking for ways to retain control over assets.
“Pure-play” shipping companies, which focus exclusively on a specific market segment (like product tankers or crude tankers), generally trade at a higher valuation than companies with vessels or investments that stray from their core focus.
Public market investors have taken note of TNK and STNG’s recent departures from “pure-play” capital allocations, so both companies now trade at price-to-net-asset-value (P/NAV) ratios of around 0.6x, while pure-play peers like Frontline (NYSE: FRO) and TORM (Nasdaq: TRMD) trade around 0.8x P/NAV.
