Long Gener8 Maritime – GNRT $6.15
Over the next 18 months, GNRT will take delivery of a baker’s dozen of newbuild ECO-VLCCs , doubling
the current VLCC fleet, and will be positioned to substantially grow earnings power and initiate capital
returns via dividends and/or buybacks.
GNRT trades at 50% of NAV, versus peers at 80-90%, due to the
“on the come” nature of cash flows/capital returns, concerns about tanker lease rates and the broader
selloff in all things energy. As the cash flows/capital returns ramp with the new deliveries, I believe the
valuation will at least begin to approach peers, implying 50% potential returns.
I do not dismiss the concerns about the tanker market including the interplay of variables including
Chinese crude demand, OPEC (and other) production levels and new build (and used) tanker supply. I do
think some meaningful downside has been priced into the tanker stocks generally and as detailed below
to GNRT specifically. In addition GNRT is largely controlled by a group of investors who are likely to seek
value realization if the stock price continues to lag as the cash flow ramps as the deliveries continue to
come on line. Oaktree (16%), BlueMountain (10%), Avenue (9%), Aurora (8%) and Monarch (7%) all own
over 5% of the company.
Gener8 (GNRT) is a $500M mkt cap trading at 40% of $16 BV and 50% of low end of $12-14 NAV range.
GNRT is the result of a merger between two distressed companies, General Maritime and Navig8. Now
called Gener8, spelled with an “8”. Silly name - silly valuation. IPO was @ $14.
Note: GNRT should give a business update along with Q4 results tonight. I will update this specific
numbers as needed following that update.
VLCC shipping company. 31 Ships now including 14 VLCCs (7 new Ecos) and 11 Suezmaxes. Will have
huge build in revs/EBITDA/FCF as they take delivery of 14 very modern efficient EcoVLCC fleet over the
next 18 months. Will institute dividend/ buybacks as earnings/cashflow ramp. Newbuilds are
essentially fully funded with support from Korean and Chinese ex/im banks. These EcoVLCC cost about
$100M each and are 15% more efficient on bunker fuel so there will be demand as they come into the
rental pools, especially versus the older VLCCs. Navigate, the former parent manages pools with over
300 ships of all types globally.
VLCC spot rates are volatile and spiked in Q4 to over $100k/day and seasonally came off in Q1 but
remain above assumptions in base models driven by excess crude supplies/storage. Lower crude for
longer is good for VLCC rates and especially GNRT given capacity additions scheduled for 2016/2017.
Get new ships into service/charters at decent rates. 10 year average around $42k/day.
Modelling EBITDA, cash flows and even the balance sheet and Enterprise Value yields a wide range of
outcomes depending on the dates used, deliveries assumed and of course assumptions about tanker
rates and utilization of the growing fleet as it hits the water.
