Description

IMPP spun off in May 2021 with 4 ships, the company has raised $140 million through 5 offerings. 

Great, so what did we get? We have a business with net tangible equity of $360 million with what we think later this year will exceed $140+ million in net cash with/ at least $40-50 million plus in earnings power. The valuation is currently $120 million.

IMPP has 3.8 million shares sold short. We think the company's cash balance should exceed its market cap. The borrow rate is -45%. Therefore, being short IMPP is effectively being short cash a pile of cash, and paying -45% for the privilege. 

A wave of liquidity is set to hit this shipping company over the next 90 days (sorry, couldn’t resist). We believe the market is pricing in 75% odds of more dilutive offerings, but we think that is more like a 25% probability for several factors…including our conversation with Harry. We think no dilutive offerings plus a large share repurchase/good results will lead to a $7-8 stock price later this year. We also think that the downside is well capped given the balance sheet. The catalyst is simply catalysts of cash piling up, strong results, and a new large share repurchase. 

For the current stock price of $3.30, IMPP has no debt and we estimate year-end net cash of $4.50 per share (post recent sale of vessel and payment from prior sale of the vessel), tangible book north of $12.00, and at least $1.00 in EPS’24.

• Current: IMPP has $1.00 in cash per share and ZERO debt
• By July: $1 per share in cash due to a fully funded receivable from CISS
• There was a media article earlier this week that IMPP sold a ship to a Chinese buyer for $42 million which would be another $1+ per share.

 https://www.tradewindsnews.com/tankers/vafias-aframax-sister-ships-sold-to-china-as-prices-hit-16-year-high/2-1-1631671

• 2024 estimate of another $1+ in operating cash flow

The business is simple, mainly oil/product tankers with 10 vessels post the recent April vessel sale.

Many will dry heave on this idea as a “Greek shipper.”

The setup:
 

• CEO Harry Vafias comes from a family worth $1+ billion and is personally worth $400 million. The family has made this in shipping over the last 3 generations.
• Tisch Family (Towerview) are investors with the CEO and company that spun off IMPP (GASS).
• CEO has grown tangible equity from $300 million to $1 billion between IMPP/GASS since 2010 w/o leverage or roughly +10% CAGR IRR.
• The playbook has been spinoffs from GASS-> IMPP-> CISS.
• Each spinoff followed the same playbook. Massive dilutive offerings to reach scale in ships, losing shareholder confidence. IMPP spun off w 3-4 ships and CISS spun off w 2. Eventually the dilutive offerings end and the stocks start trading at increasing P/B as Vafias aligns himself with shareholders. GASS is a good example of this, currently trading in the 0.4-0.5x P/B range
• Now is IMPP turns, with the CEO of IMPP going from owning -0- equity during the dilutive offerings to flipping a switch and going ALL IN.
• CEO has gone from -0- in June’24 to 39% of the equity, through conversion of preferred, open market purchases, share buybacks/warrant repurchases.
• GASS the parent of all this did 5 dilutive offerings, then -0- over the last 12 years and Harry is largest shareholder of GASS as well.
• IMPP last dilutive offering was in August 2023
• Maxim also ran the secondaries and did not provide sell-side coverage. However, in February they initiated on IMPP with an $8 BUY rating.
• CEO of IMPP/GASS holds about $100 million ownership both are listed on the NASDAQ.
• The CEO of IMPP has been CEO/CFO of GASS since 2005 and he is 45 years old.
• The company has bought YTD 400,000 shares in the open market
• CEO has bought up to $2.90 per share in the open market

What about the dilutive offering in the past?

• This is Greek shipping playbook 101. The simple answer is don’t get involved until they are done which becomes obvious when management loads the boat. Many view this is bad behavior and we do too. Our odds: The market is pricing in what we think is about an 75% chance of a dilutive offering and 25% not. We think these odds should be reversed. If reversed, we think the stock trades in the $7-8 range.
• Why 75% odds of no dilution?
• CEO owns 39% of equity
• As explained above....a lot cash should flow into the business in the near term. 
• CEO told us, he is laser-focused on driving shareholder value and is the largest shareholder of the company.
• I guess if you were going to steal the company….why spin off 3 holdings, why buy a ton of equity, why buy back OTM warrants, why hold $100 million in US listed stocks, this could result in all three imploding/activists/litigation etc. I am not saying its not possible. All I am saying is that collection of factors; MSD/Tisch, track record of success.
• Finally, wouldn’t be tough to take a company private for a discount to cash, $12+ tangible equity, and at least $1.00 in EPS’24?... Not saying its not possible but it would pretty much fully ruin his ability to run public companies...especially when his current company has a nothing valuation. 
• Galloway Capital is a 13d filer and has sent a public letter to the board last fall. 

Balance Sheet Set Up

• Cash 12/31/23 = ~$124mm

• acquisition of two vessels = ~-$69mm

• April'24 sold a vessel = ~+$40mm

• July CISS payment = ~+$38mm

• CFO-capx'24 = ~$30mm (could be higher)

So cash balance 12/31/24 before any operating income = ~$133mm|~$4.50/sh, with operating income = ~$165mm|~$5.6/sh. On top of that IMPP owns 75% of CISS (not worth much currently but could down the road)

CEO incentives:

1. -0- equity a year ago to 39% currently or 12 million shares

• CEO gets stock to TBK personal gain would be $108 million (12 * $9)
• CEO made open market buys this year up to $2.90 per share
• CEO mom bought 5% of the company in the open market $1.75 last fall and gifted to CEO
• Father gifted some stock to CEO in April
• CEO converted 100% of preferred’ s into common equity last August
• Since then, the switched has been turned to driving shareholder value vs. capital raises to acquire more ships as there have been no offerings, open market buys, family buys, and share/warrant repurchases.
• The CEO’s LLC is called Flawless Management LLC

So what happens from here?

• Huge boost in cash over the next 60-90 days
• For the year, we expect net cash to come to $4.50 per share excluding interim earnings.
• Roughly 10% of the outstanding shares are effectively short cash with a 45% borrow.
• Earnings power this year at least $1.00 per share.
• What is $12+ in TBK of which 40% of TBK is cash, ROE of 20%, CEO owns 39% of the equity, and the stock is $3.30 per share.

How and why would the stock approach TBK?

• By year-end TBK should be $400+ million or $13.5+ per share
• It should at least trade similarly to GASS at 0.4-0.5xTBK = ~$6/sh BUT IMPP has no debt and sits on ~$4.5/sh excess cash (unlike GASS). IMPP has ample liquidity for a (really) large buyback.
• With all the cash rolling onto the balance sheet there is a good chance Harry re-ups the buybacks. There is only one substantial tranche of Warrants outstanding (Warrants E) = 8.5million exercise at $2/sh, which raises $17million and could easily be bought back for incremental ~$8.5million. The company bought back majority of Warrants C and D (strikes @$8.25 and $12 respectively)

How is Harry's long-term business track record good?

• · Yes. GASS/IMPP/CISS (was one company in 2010) with $300 million in TBK and now $1 billion or 10% IRR compounded annually without leverage across cycles.

Capital Allocation:

• $140 million and 4 ships....to $360+ million in tangible equity and $67 million in EBIT last year....with good earnings power. 
• Buyback completed $10 million @ $2?
• Warrants repurchased
• Buy/sell of ships appears impressive, given the operating results. Also, he just flipped a ship for a decent gain over just 90 days.
• Earnings power from ships acquired

 DISCLAIMER: This does not constitute a recommendation to buy or sell this stock. We own shares of the company, and we may buy shares or sell shares at any time.

Catalyst

Catalysts:

• IMPP $3.30
• Deep Value $12+ TBK
• Cash 100%+ of market cap should occur in 2024
• Good business 15% ROE w/ large cash position.
• EPS’24 >$1.00