Imperial Petroleum: Good Quarter, Pristine Steadiness Sheet, Discounted Valuation – Purchase

Be aware:

I’ve lined Imperial Petroleum Inc. (NASDAQ:IMPP) beforehand, so buyers ought to view this as an replace to my earlier articles on the corporate.

On Tuesday, Imperial Petroleum reported first rate Q2/2024 outcomes with secure fleet utilization and constant money era:

The corporate ended the quarter with $129.8 million in money and liquid investments. Imperial Petroleum continues to haven’t any debt.

Subsequent to quarter-end, the corporate acquired $39 million in money from spin off C3is Inc. (CISS) as consideration for the Aframax tanker Afrapearl II.

In accordance with administration’s statements within the press launch, Imperial Petroleum’s present money steadiness “stands near $190 million”:

In Q2 24 we managed to show a usually weak seasonal interval to our second most worthwhile quarter to date, as we generated a internet revenue of $19.5 million.

Our glorious efficiency was principally leveraged by our product tankers that have been strategically located West of Suez the place marketplace for these vessels remained tight.

We take pleasure in recurring worthwhile quarters a really robust money base which presently stands near $190 million and as we repeatedly stress, zero leverage. This provides us loads of flexibility to develop additional.

We stay considerably undervalued as our market capitalization is even decrease than our money however are assured that step by step we are going to see an appreciation to our share value, pushed by our recurring robust outcomes.

Final week, the corporate took supply of the 2012-built handysize drybulk provider Neptulus from associated celebration Courageous Maritime, with supply of a 2009-built MR product tanker anticipated late in This autumn. Together, Imperial Petroleum can pay $38.35 million to Courageous Maritime.

Upon supply, the corporate will personal a fleet of seven MR product tankers, two Suezmax tankers and three handysize bulk carriers with an estimated worth of effectively above $300 million:

Through the quarter, the corporate issued 900,000 new frequent shares upon the train of Class E Warrants for internet proceeds of $1.8 million. Subsequent to quarter-end, Imperial Petroleum issued one other 3.4 million shares because of extra warrant workouts for estimated internet proceeds of roughly $6.8 million.

Excellent shares elevated by nearly 15% thus largely offsetting fleet worth appreciation and better money balances:

Assuming full train of the corporate’s remaining Class E Warrants, diluted internet asset worth (“NAV”) per share calculates to $12.45.

The corporate continues to commerce at a big low cost to NAV, possible as a result of lack of shareholder capital returns and its historical past of pursuing development on the expense of large frequent shareholder dilution.

Please observe that Q3 is more likely to be a weaker quarter, with common MR product tanker constitution charges presently down greater than 20% sequentially and most up-to-date spot fixtures effectively beneath $20,000:

With the vast majority of the corporate’s tanker fleet buying and selling within the spot market, Imperial Petroleum’s third quarter outcomes are more likely to be impacted fairly meaningfully. Personally, I would not be shocked to see Adjusted EBITDA declining by as much as 40% on a sequential foundation.

That mentioned, some seasonality in tanker constitution charges shouldn’t shock buyers and and not using a near-term finish to the Ukraine conflict and/or Crimson Sea disruptions, charges are more likely to choose again up in This autumn.

On the flip facet, with product tanker orders at 18-year highs, buyers needs to be cautious of elevated provide over the medium time period.

As well as, I’d anticipate associated celebration dealings to proceed, with the corporate possible to purchase extra vessels from entities affiliated with the household of CEO and controlling shareholder Harry Vafias.

Regardless of the weaker constitution price surroundings and ongoing lack of shareholder capital returns, shares have held up effectively for the reason that starting of the quarter, significantly when in comparison with a number of the firm’s a lot bigger opponents within the product tanker area like Scorpio Tankers (STNG), Ardmore Delivery (ASC), TORM (TRMD), and Hafnia (HAFN):

Given the corporate’s tainted historical past and ongoing lack of shareholder capital returns, Imperial Petroleum’s frequent inventory stays solely suited to speculative buyers.

Nevertheless, income-oriented readers would possibly need to take a better take a look at the corporate’s 8.75% Collection A Cumulative Redeemable Perpetual Most popular Shares (IMPPP) which I’ve mentioned in a separate article earlier this yr.

Backside Line

Imperial Petroleum’s fleet continued to carry out effectively within the second quarter, however dilution from warrant workouts resulted in internet asset worth per share remaining principally unchanged on a sequential foundation.

At present share costs, the corporate is buying and selling at a 35% low cost to its said money and liquid funding steadiness, with market contributors not assigning any form of worth to Imperial Petroleum’s fleet.

For now, I’m reiterating “Purchase” score with an unchanged value goal of $6 which is predicated on an roughly 55% low cost to my $13 diluted internet asset worth per share estimate by year-end.

Editor’s Be aware: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.