Yonezu Investing

Yonezu Investing

13-10-2022

15:31

Time for a new THREADED idea. $USEA. I've followed this story for a while, and I'm finally pulling the trigger today based on today's news. Please look for dips to enter. This is a longer term hold for me. Scroll down for my analysis. 1/

The company agreed to buy 4 tankers in early July, sniping the bottom of the tanker market. The index for these type of vessels is now higher by 20%+. The Baltic Dirty Tanker Index 2/

The purchase price for the 4 tankers was $79.5m (vs $18m market cap). Today, $USEA announced they are selling 2 of them for $62.5m, allowing the company to pay down almost all related debt, and implying the net cost of the last 2 vessels at $17m. 3/

I believe these last 2 vessels are worth ~$60m total (more on next slide) implying a ~$40m profit on the deal. Compare that to the current market cap of $18m. That's a lot of value creation. 4/

How do I arrive at ~$30m per LR2 vessel? - On Aug 22, $PSHG purchased a similar vessel for $36.5m - Reputable pricing sources list Aframax/LR2 prices in the same category, implying the 2 vessels $USEA sold(Aframax) have similar value to the other 2(LR2). - Vessel market trends 5/

I tried to be conservative with my vessel values, and would greatly appreciate feedback from shipping experts on that front. 6/

So what is $USEA doing with this value creation? They completed a $3m buyback (17% of the company) over 20 DAYS in Sept. They immediately announced ANOTHER buyback for $3m on Sept 22nd. This is an INCREDIBLY aggressive pace of open market buybacks. Mgmt commentary from PR: 7/

TLDR: This story is about compounding value creation by 1) Quickly flipping vessels for a big profit with borrowed money and 2) Magnifying shareholder value by taking the proceeds and buying back stock, which is already underway. July 2022 offering price was $3.25/unit. 8/



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