Pyxis Tankers Navigates New Waters: Strategic Fleet Expansion & Shareholder Value Initiatives
Capital Link
Investor relations, financial communications, advisory firm-14 forums : Maritime, Commodities & Energy, MLPs, CEF & ETFs
September 17, 2024
In a recent Capital Link podcast, Mr. Valentios (Eddie) Valentis , Chairman & CEO of Pyxis Tankers Inc. (NASDAQ: PXS), discussed the company’s strategic evolution and financial outlook with Mr. Poe Fratt , Managing Director of Equity Research and Senior Transportation Analyst at A.G.P./Alliance Global Partners (AGP). The podcast, aired on September 12, 2024, delved into Pyxis’s significant expansion into the dry bulk market and its emphasis on shareholder value initiatives. Also, it provided an outlook of the dry bulk and product tanker sectors and the company’s strategy to take advantage of opportunities in these sectors.
Interview Highlights:
To access the full video podcast, please click below:
Strategic Expansion into Dry Bulk
One of the most notable changes in Pyxis’ operations has been its strategic entry into the dry bulk sector, marking a shift from its traditional focus on product tankers. In the interview, PXS CEO Eddie Valentis elaborated on the company’s decision to diversify its fleet by acquiring modern, eco-efficient mid-sized dry bulk vessels.
According to Mr. Valentis, the company made its initial entry into the dry bulk market in September 2023 with the acquisition of Konkar Ormi, a 2016-built Ultramax carrier. This was followed by the purchase of two sister-ship Kamsarmax bulkers: Konkar Asteri in February 2024 and Konkar Venture in June 2024. These vessel acquisitions were attractively priced, taking advantage of a correction in asset values that provided a favorable entry point aligned with the company’s diversification strategy of pursuing counter-cyclical and counter-seasonal investments. This approach allows Pyxis Tankers (PXS) to capitalize on growth opportunities by acquiring eco-efficient, mid-sized vessels that offer operational versatility across various ports, cargo types, and customer needs.
The decision to pivot towards dry bulk was driven by PXS's management team and board members, who possess decades of experience in the sector. PXS chose this route after receiving independent valuations on the ships and opted to structure some of the acquisitions as controlling interests in joint ventures to mitigate risk and maximize capital allocation. The new vessels, primarily engaged in the transportation of coal, grains, fertilizer, and other minor bulk commodities, with two of the ships fitted with scrubbers to reduce CO2 emissions and lower bunker costs, thereby positioning them favorably in the marketplace. Mr. Valentis noted that the market remained stable through this summer, allowing the company to charter its vessels at a significant premium over prevailing market rates.
Strong Financial Performance & Chartering Activity Drive PXS Growth
In terms of financial performance, PXS’s investment in the dry bulk sector has already shown promising results. The Company has established strong banking relationships that have allowed it to secure highly competitive 5-year loans with an attractive average interest rate spread of 2.3%. This straightforward financing structure, coupled with favorable break-even levels, provided a solid foundation for its investments, making it particularly compelling from the outset.
Additionally, the market values of the vessels have appreciated since their acquisition, contributing positively to the company's equity valuation. Moreover, PXS has captured superior charter rates, outperforming industry averages, reinforcing its optimistic outlook for its dry bulk activities.
As of September 10, 2024, 91% of available days for its MR product tankers were booked at an average estimated daily time charter equivalent rate (TCE) of $31,545 per vessel. Meanwhile, 87% of available days for its bulkers were booked at an average estimated TCE of $17,641. Evidently, the company’s diversified chartering strategy, which includes both spot market and short-term time charters, has enabled it to navigate market fluctuations effectively.
Capital Allocation Strategy: Tankers vs. Dry Bulk
When discussing Pyxis Tankers' capital allocation strategy, Mr. Valentis acknowledged that deciding where to direct incremental capital -whether toward the tanker or dry bulk sector- remains a challenging decision. As he explained, asset values are currently elevated, particularly in the tanker sector, and dry bulk asset values have recently risen significantly. Given this environment, PXS is exercising caution in committing additional capital to either sector.
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Mr. Valentis further elaborated that the dry bulk market, which is currently experiencing slower activity, may eventually see a decline in asset values, potentially creating new investment opportunities. However, he was clear that this remains uncertain for the time being. He also noted that the tanker market has had an impressive performance over the past two and a half years, with asset values reaching unprecedented levels. While he anticipates that this cycle will eventually turn, he emphasized that Pyxis Tankers is prepared to seize growth opportunities in both sectors as they align with the company’s strategic objectives.
Product Tanker and Dry Bulk Sector Outlook
Mr. Valentis asserted that the product tanker sector is currently the driving force in the shipping market, with healthy performance expected in the short term. While the container market is also performing well, he stressed that the tanker sector is leading the way, and he remains optimistic about its prospects for 2025. However, he recognized the inherent unpredictability of the shipping industry but maintained a bullish outlook on the tanker sector for the coming year. His positive stance on the product tanker market has been primarily influenced by geopolitical factors over the last two and a half years, which have significantly driven up rates, the ongoing Russia-Ukraine conflict and its impact on market dynamics, with ton miles at record highs. Additionally, growing concerns from the Israel-Hamas conflict, which has affected vessel passage through the Suez Canal, and several reported attacks on vessels passing through the Gulf of Aden, causing diversions, continue to support the product tanker market.
The outlook for the sector is further supported by solid demand forecasts, with the IMF predicting a 3.25% annual increase in global GDP through 2025, seen as a positive indicator for the market. However, this optimism is tempered by the substantial order book in the MR2 sector, with around 15% of the fleet currently under construction. On the other hand, the aging fleet, with approximately 14% of vessels over 20 years old, is expected to create a more balanced market outlook while the scheduled delivery of 110 MR2 tankers by the end of 2025 could affect future market dynamics. However, slippage could impact actual vessel supply growth.
Regarding the significance of the latest OPEC+ decision to delay production increases that were scheduled to start in the fall, the EIA, indicated that global consumption is growing by 1 million barrels per day. This reduced output from OPEC+ will likely result in a supply deficit towards the end of the year. Nevertheless, Mr. Valentis believes the impact on the market will be relatively mild and awaits further clarity from the winter demand figures, while not anticipating a major effect on market dynamics.
On the dry bulk outlook, demand is projected to grow by approximately 2.2% this year based primarily on solid global GDP growth. The order book and deliveries are expected to range between 2.2% and 2.5% in 2024, yet there is still a substantial order book in the dry bulk sector, with around 10% of the fleet currently on order. Additionally, 10% of the existing fleet is over 20 years old, which helps to balance market dynamics over the longer-term. While China, a key driver for dry bulk commodities such as iron ore, coal, and grain, remains a significant market for the sector, uncertainty around its economic growth in the coming quarters continues to pose a concern for the sector outlook.
Investors are also concerned about the risk of an economic recession, though there is cautious optimism that lower interest rates could foster some recovery. Mr. Valentis pointed out that despite its relatively small size, Pyxis Tankers has demonstrated resilience over the past decade, effectively navigating challenges, including a difficult tanker market, and taking advantages of opportunities.
Looking ahead, the company expects a favorable chartering environment for both product tankers and dry bulk carriers, driven by solid global demand for seaborne cargoes and manageable vessel orderbooks. With its strong financial position and forward coverage, Pyxis Tankers is well positioned to capture potential upside.
Capital Allocation Priorities and Stock Buyback Program
As PXS continues to navigate the evolving market landscape, it remains focused on prudent capital allocation. Over the next year, the company plans to repay the loan principal as scheduled and complete two special surveys, estimated at a total cost of $1.75 million. PXS also intends to continue its common share buyback program while selectively pursuing vessel acquisitions, focusing on projects which provide visible cash flows over the next 5-7 years, rather than driven by short-term spot market economics.
The company's stock buyback program, initiated in May 2023, has already repurchased over 481,164 shares at an average cost of $4.06 per share, with approximately $1 million in authorization remaining under the $3 million program. The CEO acknowledged that the reduction in public float, now at less than 4.6 million shares, has led to a decline in trading volume, despite the company’s healthy operating and financial results. However, the buyback program, combined with the company’s recent financial performance, should continue to deliver significant value to shareholders.
In tandem with its buyback program, PXS Tankers is moving forward with the full redemption of its Series A Convertible Preferred Stock (PXSAP). On September 6, 2024, the Board of Directors approved the redemption of the remaining 303,631 shares, which will be completed on October 20, 2024. The redemption will eliminate the payment of monthly cash dividends on the preferred shares and extinguish the potential conversion into 1.35 million common shares, reducing the company's fully-diluted share count and improving valuation metrics, such as earnings EPS and NAV per share, while enhancing the trading profile.
About Pyxis Tankers
The Company currently owns a modern fleet of six mid-sized eco-vessels, which are engaged in the seaborne transportation of a broad range of refined petroleum products and dry bulk commodities, and consist of three MR product tankers, one Kamsarmax bulk carrier and controlling interests in two dry bulk joint ventures of a sister-ship Kamsarmax and an Ultramax. The Company is positioned to opportunistically expand and maximize its fleet of eco-efficient vessels due to significant capital resources, competitive cost structure, strong customer relationships and an experienced management team whose interests are aligned with those of its shareholders. The company’s common shares are listed on the NASDAQ Capital Markets under the trading symbol “‘PXS.”’ In addition, PXS’s publicly traded convertible preferred stock and common stock purchase warrants can be found on NASDAQ under the ticker symbols “PXSAB” and “PXSAW”, respectively. For more information, visit: https://www.pyxistankers.com.
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