Pyxis Tankers: Reverse Stock Split Opens Buy Opportunity (NASDAQ:PXS)

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It’s been over a year since I last discussed Pyxis Tankers or “Pyxis”(NASDAQ:PXS, NASDAQ: PXSAPPXSAW), a small Greek product carrier operator.

The company currently has a fleet of five MR2 tankers with an average age of 8.5 years and is controlled by its main shareholder Valentios “Eddie” Valentis.

Fleet overview

Company SEC-Filing / Compass Maritime

Pyxis Tankers got its Nasdaq listing in late 2015 through a reverse merger with the shell of LookSmart, once a leading search engine in the early days of the World Wide Web. After the remnants of LookSmart were transferred into a private entity, Pyxis Tankers was merged into the empty shell.

The stock has been quite volatile since the company went public, mainly due to its low free float and generally unfavorable market dynamics in the tanker segment over the past two years.

Key financial indicators

Company’s SEC Filings

At times, stocks have been chased by dynamic traders, mostly as a side game to current or former dynamic crowd favorites like Castor Maritime (CTRM), Performance Shipping (PSHG), Top Ships (TOPS), Globus Maritime (GLBS ) and Seanergy Maritime (BOAT).

In the past, the company has largely failed to capitalize on these mostly short-lived but often violent moves, but last year management seized the opportunity and sold 14.3 million new common shares in a private placement for gross proceeds of $25 million. The agreed purchase price of $1.75 per share represented a nearly 200% premium to the estimated net asset value per share (“NAV”) at that time.

Pyxis Tankers used the funds to acquire two more MR2 product tankers last year (Pyxis Lamda and Pyxis Karteria).

In particular, the $32 million purchase by a related party from the Pyxis Lamda doesn’t look great due to a number of issues:

  1. Purchase price was approximately 8% above market value
  2. The vessel was delivered to the company with its 5-year special survey due
  3. Partial payment in discounted ordinary shares

Earlier this year, the company sold its small tankers North Sea Alpha and North Sea Beta for an aggregate purchase price of $8.9 million. After repayment of related debt and settlement of various transaction costs, net cash proceeds were $2.7 million.

Improve tanker market conditions

After years of stagnation, tanker charter rates have seen a massive increase in recent times.

According to competitor Ardmore Shipping Corporation or “Ardmore” (ASC), the dislocations of tanker positions caused by the Russian-Ukrainian conflict amid low levels of global product inventories and a seasonal increase in diesel demand in South America have driven up charter rates.

As of May 4, 2022, Ardmore had pegged approximately 50% of its total MR revenue days for the second quarter of 2022 at an average time charter (“TCE”) rate of approximately $25,500 per day, or a sequential increase of more than 60%.

Danish competitor Norden also provided a bullish outlook on Thursday:

Second quarter rates, particularly for MR vessels, started strong. Based on a tight oil market, commodity carrier rate volatility is expected to remain elevated across all regions as global inventory levels approach historically low levels. In particular, the war between Ukraine and Russia and sanctions against Russia are changing business patterns, creating high demand for MR. The high delivery rates of petroleum products are expected to continue in the coming quarters.

While Pyxis’ share price is up around 50% from its January low, unlike most of its peers, the company is still trading at a substantial discount to estimated net asset value ( “NAV”) per share:

NAV

Compass Maritime / SEC-Filling Company

Unfortunately, two of the company’s vessels remain on time charter contracts at less than stellar rates, with new delivery currently scheduled for the end of this month and July respectively.

Given this issue, the company’s second quarter results are unlikely to fully reflect the current strength of the market, but with charter rates expected to remain at healthy levels, the third quarter should see further improvement. with the entire fleet back on the spot market by July.

Keep in mind that Pyxis Tankers will have to do a stock split until June 13 to regain compliance with Nasdaq’s minimum bid price requirement, which could present a decent opportunity to open a position on ordinary shares.

Investors looking for a slightly less risky investment in Pyxis Tankers should consider taking a position in the company’s Series A Convertible Preferred Shares (PXSAP), which rank above common stock and pay a dividend in rather juicy annualized cash of 10.7% at current levels.

In addition, the preferred shares are convertible into new common shares at a price of $1.40 at any time. If tanker charter rates remain high through 2023, the embedded call option could very well come into the money at some point in the future.

Conclusion :

Suffice it to say, recent geopolitical events have significantly altered the dynamics of petroleum product carriers, with the high charter rate environment now widely expected to persist for at least the next two quarters.

Although Pyxis Tankers remains a small player, the company should start generating significant cash flow from its operations this quarter.

Unlike most of its larger peers, Pyxis still trades at a substantial discount to NAV, thus offering a decent upside.

With the company required to conduct a stock split until June 13, speculative investors may soon have the opportunity to initiate a position in common stock at even lower price levels.

Investors looking for a slightly less risky investment in Pyxis Tankers should consider taking a position in the company’s Series A Convertible Preferred Shares (PXSAP).

About Jason Norton

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