General Maritime Announces Dividend Policy, Picks up Premium

In what we can only assume is an effort to drive up the General Maritime share price in advance of Frontline’s potentially hostile take over, General Maritime has adopted a dividend policy. The play here is that dividend yield paying stocks like Knightsbridge and NAT are being valued on a multiple of dividends, which is significantly higher than the tanker companies that pay small dividends (less than 5 percent) or no dividends at all. The chart on page 2 illustrates this phenomenon

GMR Shares a BUY, with Potential to Reach $53, $62…or Even $76

Based on an NAV of $41.83/share, as estimated by Jefferies, General Maritime would be worth over $76 if it was valued the same way as NAT, and even if it was valued like the more modest yield play Knightsbridge, the share price would still go up over $62. Analysts were quick to match General Maritime’s shift in strategy to a shift in target valuation. Even before the dividend policy announcement, Dahlman Rose & Co. analyst Harvey Stober had initiated coverage on General Maritime with a BUY on January 19, noting that: “With cash accumulating quickly, GMR has the wherewithal to institute a significant dividend or major share repurchase program.” Not long after, General Maritime announced just such a plan. Morgan Stanley quickly moved its target P/NAV for GMR up to 150%, upgrading the company to Overweight V with a target share price of $53. The more bullish Jefferies & Company set a target price at $62, close to what GMR would be at VLCCF’s valuation. What we did not see in the reports, however, was a mention of Frontline.

A Future with FRO? Depends on the Price

Peter Georgiopoulos and Jeff Pribor spoke confidently of making accretive acquisitions and growing the company in their conference call, and for the most part questions from listeners revolved around the details of their plans. Only Natasha Boyden of Cantor Fitzgerald ventured to directly ask about the situation with Frontline and whether this action would have an impact. To this there was a pause, followed by a cautious “I don’t know” before the more confident answer that this strategy change was the result of a long study and careful consideration of company strategy. But then just yesterday Bloomberg TV reported that General Maritime would be interested in a merger with Frontline, saying that Peter Georgiopoulos commented that the rival oil tanker operator would have to pay heavily in cash if he wished to purchase the company.

Whether or not this is in the cards, Mr. Georgiopoulos and Mr. Pribor have already succeeded in having their company reevaluated by leading analysts – Magnus Fyhr and Douglas Mavrinac at Jefferies and Mark MacLean and Ole Slorer at Morgan Stanley – and have watched their stock price shoot up an astonishing 9.81% to $44.65 in just one day. Not only that, but the terms of the dividend policy specify the Board of Director’s intent to establish reserves for maintenance and capital expenditures probably equating to around $100 million in 2005. So while they immediately picked up the premium in share price, the company should have a grace period before it actually has to pay out any cash.

In what we can only assume is an effort to drive up the General Maritime share price in advance of Frontline‘s potentially hostile take over, General Maritime has adopted a dividend policy. The play here is that dividend yield paying stocks like Knightsbridge and NAT are being valued on a multiple of dividends, which is significantly higher than the tanker companies that pay small dividends (less than 5 percent) or no dividends at all. The chart on page 2 illustrates this phenomenon

GMR Shares a BUY, with Potential to Reach $53, $62…or Even $76

Based on an NAV of $41.83/share, as estimated by Jefferies, General Maritime would be worth over $76 if it was valued the same way as NAT, and even if it was valued like the more modest yield play Knightsbridge, the share price would still go up over $62. Analysts were quick to match General Maritime’s shift in strategy to a shift in target valuation. Even before the dividend policy announcement, Dahlman Rose & Co. analyst Harvey Stober had initiated coverage on General Maritime with a BUY on January 19, noting that: “With cash accumulating quickly, GMR has the wherewithal to institute a significant dividend or major share repurchase program.” Not long after, General Maritime announced just such a plan. Morgan Stanley quickly moved its target P/NAV for GMR up to 150%, upgrading the company to Overweight V with a target share price of $53. The more bullish Jefferies & Company set a target price at $62, close to what GMR would be at VLCCF’s valuation. What we did not see in the reports, however, was a mention of Frontline.

A Future with FRO? Depends on the Price

Peter Georgiopoulos and Jeff Pribor spoke confidently of making accretive acquisitions and growing the company in their conference call, and for the most part questions from listeners revolved around the details of their plans. Only Natasha Boyden of Cantor Fitzgerald ventured to directly ask about the situation with Frontline and whether this action would have an impact. To this there was a pause, followed by a cautious “I don’t know” before the more confident answer that this strategy change was the result of a long study and careful consideration of company strategy. But then just yesterday Bloomberg TV reported that General Maritime would be interested in a merger with Frontline, saying that Peter Georgiopoulos commented that the rival oil tanker operator would have to pay heavily in cash if he wished to purchase the company.

Whether or not this is in the cards, Mr. Georgiopoulos and Mr. Pribor have already succeeded in having their company reevaluated by leading analysts – Magnus Fyhr and Douglas Mavrinac at Jefferies and Mark MacLean and Ole Slorer at Morgan Stanley – and have watched their stock price shoot up an astonishing 9.81% to $44.65 in just one day. Not only that, but the terms of the dividend policy specify the Board of Director’s intent to establish reserves for maintenance and capital expenditures probably equating to around $100 million in 2005. So while they immediately picked up the premium in share price, the company should have a grace period before it actually has to pay out any cash.