Shareholders have applauded what analysts called a well-thought out strategic review from Tufton Oceanic Assets (SHIP ) that has resulted in an increased dividend target, more capital returned to shareholders and a plan to realise assets at the beginning of 2028.

The company, which faces a three-yearly continuation vote in October, said its annual dividend target would rise from $0.085 per share to $0.10 per share. It anticipates this new dividend will be covered 1.5 times over the next 18 months.

The board, which is chaired by Robert King, are also ‘evaluating a proposed one-off return of capital’ in the coming year. Shareholders will receive between 5% to 10% of net asset value (NAV) at the prevailing valuation minus attributable costs.

A potential near-term return of capital would be facilitated by the sale of two product tankers due to close in the second quarter of this year, with $41.75m (£32.9m) of proceeds equivalent to 10% of NAV.

King added that every year the board will consider if it can return more capital using excess investable cash if there are no suitable investment opportunities. The current buy-back policy, to use surplus money if its shares trade at a discount wider than 10%, remains in place.

Following the announcement shares in the Guernsey-listed company jumped 6.5% on Tuesday to $1.06. 

Medium-term opportunity

As part of the review the board and investment managers reiterated their confidence in the medium-strategy of the company, but announced plans to only invest through to 2030, with an intention to sell the portfolio beginning in 2028.

Fund managers Andrew Hampson and Nicolas Triogalas said they anticipate ‘the investment opportunity set for fuel-efficient secondhand vessels to be very strong for the next decade as the shipping industry slowly transitions to zero carbon fuels to meet tightening regulations and decarbonisation targets’.

They added that ‘strong supply-side fundamentals’ will support high yields and secondhand values, which will result in internal rate of returns being higher than the company’s published target.

As part of the revised capital allocation policy the company will prioritise fleet renewal, based on age, technology and sector outlook.

‘Returns from all new asset investments over a three-year holding period will be compared to the benefit from a return of capital given the prevailing share price at the time of the proposed investment and medium-term market outlook,’ the stock exchange announcement said.

Hampson and Triogalas have struggled in the past 12 months, just scraping a 0.1% underlying return, while the share price has fallen 10% putting the closed-end fund at a discount of 31% before today’s announcement.

Over three and five years the performance is stronger with the underlying assets growing 80.7% and 96.6% respectively with dividends included, while the shares have delivered total returns of 33.1% and 36.4%.

German private company, Chirstian Oldendorff, owns 10% of shares, followed by Fidelity International with 9.8%, M&G Investment Management with 7.2% and Waverton with 6.5%, according to Refinitiv.

Matthew Hose, analyst at Jefferies said the plan to begin to realise the portfolio in four years time ‘strikes a good balance between addressing the current extent of the discount and ensuring the NAV is maximised, particularly given how the manager remains constructive on the medium-term outlook for vessel valuations regarding both bulkers and tankers’.

Stifel’s Sachin Saggar also backed the announcement and said ‘there appears to have been a lot more thought behind the process’.

‘It seems as if the board are making a big effort to enhance shareholder value, with the discount to NAV now an excessive 31%,’ he wrote in a note. ‘We believed shareholders were generally quite content with the manager’s performance since IPO (despite the lagging share price) and this RNS should also be well-received.’

Q4 update

In the final quarter of 2023 NAV rose 6.7% to £335m, or £1.139 per share, contributing to a total 10% rise for 2023. The fund will pay a quarterly dividend of $0.02125 per share on 9 February.

The company also reported an increase in bulker net yields. Bulkers, which are on shorter duration charters compard to the rest of portfolio, saw the run-rate net yield rise two percentage points from the previous quarter to 9.5%.