Pyxis Tankers – Continued Focus On Shareholder Returns With Diversification Into The Dry Bulk Sector

Capital Link President Nicolas Bornozis recently hosted an interview with Mr. Eddie Valentis, Chairman & CEO of Pyxis Tankers Inc. PXS. The interview, which is part of Capital Link’s “Trending News Podcast Series,” delved into PXS recently announced move into the Dry Bulk sector, as well as the Company’s recent developments, strategy, capital allocation, and market outlook.

The full interview can be accessed here.

Interview Highlights

• Diversification into dry bulk sector though a newly formed single ship JV- hedging volatility, improving fuel efficiency and operational performance 
• Capital Allocation – Share Repurchase program of $2 million enhancing shareholder value
• PXS focused on shareholder returns, debt reduction, improving liquidity, fleet modernization and growth 
• Product Tanker Sector Fundamentals – Focus on demand side catalysts- shifting refinery landscape, increased ton miles

In this recent interview with Capital Link, PXS CEO, Mr. Eddie Valentis discussed the company’s decision to move into the dry bulk sector. Mr. Valentis also expanded upon the company’s capital allocation strategy, as well as his outlook on the market’s future. 

Diversification Into The Dry Bulk Sector 

Previously a pure-play product tanker shipping company, PXS recently announced its decision to enter the dry bulk sector with the purchase of a modern-eco Ultramax bulk carrier. Given the deep experience of management and Board of Directors, the Company felt comfortable with the timing and market fundamentals to enter the drybulk sector. While this move may seem like a departure from the Company’s focus on tankers, Mr. Valentis provided a multifaceted rationale for the choice. 

Notably, the investment into the dry bulk was counter-cyclical in nature, as the product tanker market is currently quite healthy, while the dry bulk sector is in a soft period. Therefore, PXS saw potential in the joint venture acquisition of a specific dry bulk asset – a 2016 Japanese-built Ultramax bulk carrier featuring leading-edge technology – at an opportune time, and for a competitive price. The vessel has been renamed “Konkar Ormi” and initially will be chartered in the spot market.

The 63,250 dwt, modern-eco ship is fitted with both a scrubber and a ballast water treatment system, reducing environmental emissions and lowering operating costs by significantly improving fuel efficiency and operational performance. 

The purchase of the vessel is a meaningful enhancement to PXS’s growing investment platform.

PXS invested approximately $6.8 million in cash for a 60% ownership interest in the joint venture. By retaining control of the joint venture, PXS wields considerable operational influence while simultaneously benefiting from shared risk. The joint venture structure allows the Company to maintain financial flexibility and ensures it can pursue attractive investment opportunities in other shipping segments as they emerge. Upon funding the investment, the Company had approximately $31.9 million in total cash. 

While product tankers will remain at PXS’s core, “medium-sized, modern eco-efficient dry bulk vessels will also be considered, as they provide operating flexibility and compelling value,” Mr. Valentis said. “We do not follow a specific market trend but remain committed to the product tanker sector…Our decision to move into the dry bulk sector was spurred by the fact that although the Company had lowered its debt significantly in the past year, and made significant cash reserves, the market did not seem to recognize this,” Mr. Valentis continued. Therefore, the Company viewed diversification as “the way forward.”

Sector Outlook & Market Dynamics 

The product tanker market experienced a boom starting two years ago, followed in the wake of the War in Ukraine, as charter rates and ship values increased dramatically due to altered trade routes and increased ton miles. Despite its small size, PXS was well poised at the time, as it had purchased modern-eco vessels before the market run-up, while divesting older ships at attractive prices, the Company’s CEO stated.

While rates are not as high now as they were in Spring, 2022, they remain quite healthy. In the interview with Capital Link, Mr. Valentis highlighted factors such as low refined petroleum product inventories, which are below the 5-year average in many areas, and strong charter rates, particularly in the Pacific basin, as propelling market success, even though the Fall is historically a slower period for the sector. 

In terms of supply, the orderbook for medium-sized vessels, the segment on which PXS is focused, is relatively modest with new build deliveries now scheduled into 2026. The modest orderbook, coupled with strong demand fundamentals, indicate healthy market dynamics for the product tanker sector in the longer-term, Mr. Valentis stated. However, the industry remains susceptible to geopolitical and macroeconomic risks and even weather conditions that can lead to uncertainty. 

Looking ahead, Mr. Valentis is optimistic about global product tanker demand, which he expects to continue expanding for decades to come. This optimism is fueled by the shifts in the refinery landscape and lengthened trade routes brought about by the War, which are particularly influential in supporting ton-mile expansion and are likely to remain significant in the coming years. Additionally, demand for refined petroleum products has historically correlated with global GDP growth. Based on the IMF’s global GDP growth forecast of 3% per annum for both 2023 and 2024 in its most recent report, product demand is likely to increase. 

Share Buyback Program 

Despite the Company’s strong financial position and a healthy product tanker market, its shares are trading at a significant discount to NAV compared to its peers, Mr. Valentis stated. In May of this year, PXS authorized a share repurchase program totaling $2 million, aimed at enhancing shareholder value. 

As of September 15, 2023, the Company had spent $0.53 million to acquire a total of 147,907 shares at an average price of approximately $3.59, including commissions. As of that date, 10,725,336 PXS shares were outstanding. As its trading liquidity has fallen since PXS began repurchasing its shares, the Company has taken a measured approach to buying back its shares under SEC guidelines. However, the buybacks are very accretive on a per-share basis. 

Sale Of ‘Pyxis Epsilon’

Following a press release that was issued on Friday, September 22, 2023, the Company has agreed to sell the ‘Pyxis Epsilon’, a 2015 built 50,295 dwt. product tanker, at a very attractive sale price of $40.75 million in cash to an unaffiliated buyer located in the United States. Completion of this transaction, which is subject to customary closing conditions, is expected to occur during the fourth quarter of 2023. Cash from the sale will go towards general corporate purposes. The Company expects to book a non-cash gain of $16.8m after repayment of related debt. The Company’s cash balance of $30.7 million will “subsequently increase upon receipt of the net cash sale proceeds of over $26 million”, Mr. Valentis commented. This transaction optimizes fleet value and further enhances the Company’s cash position to provide greater operating and financial flexibility. It also underpins PXS’s business development plans to potentially pursue additional vessel purchases as well as other corporate and strategic initiatives.

PXS Positioning And Future 

Currently, the Company is focused on modernizing and expanding its fleet with eco vessels, repaying its scheduled bank debt and continuing its share buyback program. Another key focus for PXS involves selectively considering advantageous investments in other shipping segments in order to fulfil its strategic growth plan, within its investment parameters.

In terms of the Company’s future, Mr. Valentis highlighted the strength of the tanker market, as well as the many benefits that asset diversification provides to both the Company and its shareholders. He stressed that he envisages PXS as a diversified shipping company with an expanded fleet and larger market capitalization in the future.

Capital Link is the investor relations advisor to Pyxis Tankers.This content is for informational purposes only and not intended to be investing advice.