At a time when professional investors are turning up their noses at traditional businesses related to fossil fuels and embracing almost anything green, there is one choice on the New York Stock Exchange for a play on vessels that help construct offshore wind farms.
That choice is Eneti, which in August 2020 announced its transition from an owner of bulkers whose cargoes included the likes coal into an owner of wind turbine installation vessels (WTIVs).
But with all the dry assets long gone more than two years into the transition from Scorpio Bulkers, Eneti’s stock is getting hit by some serious headwinds.
Eneti is trading at barely 50% of the outfit’s net asset value (NAV), a level lower than virtually all of its former peers in traditional shipping sectors like dry bulk, container ships, tankers and gas.
So what gives exactly? Why is Eneti having so much trouble gaining traction with investors who supposedly are so focused on environmental, social and governance (ESG) priorities as their new religion?
Clarksons Securities equity analyst Turner Holm could not help asking exactly that question on Wednesday during a panel on Eneti at the Capital Link New York Maritime Forum.
“The stock is trading at half of NAV,” Holm said. “We have NAV at $16.18 and it’s trading at $8. Now I realise we’ve seen shipping stocks trade below NAV before, but that’s when the spot rates are collapsing. Here the spot rates are going up.”
Holm then ticked off a few more factors. Eneti has some of the very few WTIVs available to the market. It has no balance sheet issues. It recently monetised a legacy shareholding in New York-listed Scorpio Tankers. It bought back 6% of its shares at half of NAV. And it announced a new $50m shares buyback authorisation.
The mild-mannered analyst appeared to grow increasingly exasperated as he went through his list.
“I’ve never said this before about a company, but frankly I think it’s absurd,” he said of the shares’ woes.
Now a cynic might point out that Scorpio Tankers, the former Scorpio Bulkers and even Eneti have in the past opted for dilutive equity raises in times of need. Perhaps investors remember.
But as Holm has pointed out, Eneti has no such needs as it completes construction of two WTIVs to be delivered from South Korea’s Daewoo Shipbuilding & Marine Engineering in 2024 and 2025.
So Streetwise put the question of the trading mystery to a few others on Wednesday, including James Doyle, who serves as Eneti’s head of corporate development and investor relations. Doyle was among those presenting at Wednesday’s Capital Link session.
“I think the investor time horizon is shorter than the project duration of this whole buildout. Meaning the real inflection point is 2025 to 2026, when the newbuildings come in,” Doyle said.
Even potential investors who think the stock looks cheap probably figure they can get in at a bargain six months from now, Doyle said.
“But by the time that happens, we’ll have contracted our first newbuilding, we’ll have made significant progress in financing of the newbuildings, and that should lead to a re-rating of the stock,” he said.
Sitting in limbo
Eneti is also facing “neither fish nor fowl” syndrome in which it is not quite a shipping company nor a utility outfit in renewables, but rather in its own niche sector, Doyle said.
Another perspective came from analyst Greg Wasikowski of Webber Research & Advisory, who also spoke on the panel.
“I think it’s a function of timing and messaging. They still had ties to shipping until recently and still have a small group of assets deployed in oil and gas. Plus there aren’t a ton of direct comps out there right now so between all that, the valuation methodology could be in limbo right now,” Wasikowski told Streetwise.
“Their continuing to clean up and simplify the story as well as secure additional charters and ultimately derisk should help a new group of investors step in and potentially change the valuation narrative. It could be less aligned with NAV and more aligned with premium multiples seen elsewhere across renewables and clean tech.”
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