Must-know: Share buybacks and common share acquisitions

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Must-know: An overview of Scorpio Tankers Ltd (Part 8 of 8)

(Continued from Part 7)

Common share acquisitions

During the 2Q14, Scorpio Tankers (STNG) acquired 11.5 million of its common shares that are being held as Treasury shares. They include common shares that were purchased in the open market under the stock buyback program and also common shares that were exchanged with shares in Dorian. The company has $75.3 million remaining on its $100 million stock buyback program while it has 189.7 million shares outstanding as of June 12, 2014.

Share buyback program

In order to reduce the number of shares on the market, companies resort to repurchasing outstanding shares. The shares will increase the value of shares available or to eliminate any threats by shareholders who may be looking for a controlling stake. A buyback allows companies to invest in itself with different motives that would support the company’s financials.

Reasons for the buyback of shares differ by company include excess cash on hand, upliftment of financial ratios like earnings per share (or EPS), price-earnings ration (or P/E), return on assets (or ROA), and return on equity (or ROE), or large employee stock option programs can be some of the motives for buyback.

In the case of STNG, the company has argued that its stock is undervalued by investors. As a result, it has led Scorpio to repurchase shares. The owner has one of the world’s largest orderbooks in products tankers.

On June 30, 2014, STNG announced a new $150 million stock buyback program which replaces its stock buyback program that was previously announced in April, 2014—which is being terminated effective immediately. As of April 28, 2014, STNG has purchased $18.9 million of shares in the open market at an average price of $7.80. Meanwhile, during the second quarter, the company acquired 22.6 million of its common shares that are being held as Treasury shares. 178.5 million shares are outstanding as of June 30, 2014.

The initial purchasers in STNG previously announced an offering of $300 million of the notes and fully exercised their option to purchase an additional $60 million in the notes for an aggregate of $360 million in the notes. The full exercise of the option to purchase an additional $60 million in convertible senior notes is due 2019.

STNG has peers like Navios Maritime Acquisition (NNA), Capital Product Tankers LP (CPLP), and Tsakos Energy Navigation Ltd. (TNP). The Guggenheim Shipping ETF (SEA) tracks the shipping companies.

 

 

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