Scorpio Tankers

STNG 

NYSE Update HOLD

HOLD
unchanged
PRICE TARGET US$9.00
unchanged
Price (17-Dec)
Ticker
US$8.19
Company Update

 Scorpio announces an update to its fleet

Purchase of four newbuild LR2s with two additional options
Agreements in place to sell three older vessels

Delivery of six newbuilding product tankers

• STNG agreed to acquire four newbuild slots from Scorpio Bulkers (SALT) with an option
for two additional vessels. These contracts were originally placed by SALT for Capesize
vessels at Korean shipyards, but will be modified to LR2 product tankers. Each vessel
will cost $51 million and they are expected to be delivered in 2016. The price for the
two option vessels is fixed at $52.5 million, and the options are declarable by May 31,
2015. If exercised, these vessels will be delivered in Q4/16.

• Management noted on the call that there are no related party or third party fees
associated with this deal. We estimate the purchase price for the ships are at a
modest discount to current asset values. No financing is in place for this acquisition,
and new credit facilities will be needed to fund this deal.

• We believe this is a modest positive to the story as it expands their fleet in a sector
that we think has good prospects going forward (LR2s) at a price below NAV.
• Scorpio also announced they have agreed to sell three of their older vessels, the STI
Harmony, STI Heritage and the Post-Panamax Venice, for total consideration of $74
million. In connection with this deal, STNG will record a write-down of $2.6 million for
Q4/14.
• Finally, the company announced that they have taken delivery of the LR2 STI Condotti,
which is on charter for 55 days at approximately $30,000/day. The company took
delivery of the MR tankers, the STI Battery and STI Soho which are on 120 day
charters at $18,000 per vessel/day. The three Handymax product tankers, the STI
Finchley, STI Clapham and the STI Poplar, are on 120-day charters at $14,000 per
vessel/day. With these six deliveries, the company now has 25 newbuild deliveries
expected through 2016.

Valuation
Our forward, normalized NAV (2016E) is $8.77 per share. As such, we believe the stock is
somewhat above fair value and feel there are more underfollowed names that are better
ways to play the tanker market. Our $9 price target is based on a 1.0x multiple to our
forward, normalized NAV.

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