The good results from Stealthgas a leading LPG player, are well known, and investors are starting to catch on. As the equity markets were rising to new heights on March 5, ceo Harry Vafias was honored by ringing the closing bell at Nasdaq’s Times Square location.
Stealth’s fleet totals 37 LPG’s, three product tankers and one aframax. The company is close to an LPG “pure play”. In thanking analysts attending the ceremony, Vafias said: “We are an orphan, we have no comps,” referring to “comparables”- peer companies that can be easily compared. Other familiar players, like MC Shipping and Navigator Gas, are presently in private hands and not readily accessible to investors.
After the closing ceremony, Vafias explained to Seatrade Global that: “The LPG sector is the only one seeing negative fleet growth. We are seeing growing demand at a time of decreasing vessel supply.”
Stealthgas itself has four eco vessels on order for 2014 delivery (included within the 37 LPGs); overall, he says that the relevant handy sized part of the LPG fleet numbers 250 vessels, with a scant 16 on order. Vafias says that his company will acquire ships selectively- possibly newbuildings or possibly secondhand. “We have dry powder of $120m that can get us between three and five ships.”
On the chartering front, LPG charters are typically multi-year; Vafias says that charters on ten ships will be running off during 2013, adding that: “We are hoping to get hires between 10% to 15% higher than we were earning before.” Broker estimates put the monthly time charter earnings, basis one year deals, in late 2012/ early 2013 at around $250,000 for semi-refrigerated 3,500 cbm vessels and just under $300,000 for pressurized 3,500 cbm ships.
In a business where timing is so important, investors dread having “missed the boat”. This explains the constant rotation by fickle investors into new sectors; it suggests that GASS (clearly small-cap with a valuation of roughly $230 million and a P/E of 8x) could benefit from gas-mania as stock buyers realize that the better known players don’t offer the bargain that Stealth does. And, in this world of soundbites, some investors (and bloggers offering up fresh ideas) do not know the difference between LPG and LNG; they will find ways to get aboard the trend, at a reasonable entry point.
Larger entities, Teekay Gas ($2.7bn market cap, with 21x P/E) and Golar LNG ($2.9bn marker cap and 26x P/E), though not directly comparable, have already been discovered and seen good runs. Another selling point, as the shares move upward, is the pricing of Stealthgas below its NAV.
A big component of excitement in the LNG story is US exports; the gas pricing dynamics are also driving U.S. exports of LPG. Vafias mentioned that one vessel, Gas Evoluzione (3,504 cbm, fully pressurized, built 1996), had recently loaded LPG in the States. A presentation given to analysts suggests: “…the export capacity in the US is expected to rise to 12 mmt in 2015 from 5 mmt now,” and that changed Coast Guard regulations will allow propane to be loaded in the States.
Video of Nasdaq event: