Description

This will be a brief because of the timing of this possible multi-bagger idea.  I expect to rank low in terms of quality, but I view this idea is a potential multibagger. The stock closed red at 1.48 yesterday.  Assuming warrants have been exercised, we have 23.9 million shares outstanding and about 797,000 preferred A shares (which /i will discuss later).

This company is a spin-off from StealthGas

About IMPP:

Imperial Petroleum Inc. (“Imperial”) was formed by StealthGas Inc. on May 14, 2021 under the laws of the Republic of the Marshall Islands. Initial share capital of Imperial consisted of 500 common shares. StealthGas Inc. separated its crude and product tankers by transferring to Imperial its interest in the 4 subsidiaries noted below, each owning one tanker (collectively, “Imperial Petroleum Inc. Predecessor” or the “Company”). The transfer was completed on November 10, 2021 in exchange for 4,774,772 newly issued common shares and 795,878 Series A Preferred Shares in Imperial. On December 3, 2021, StealthGas Inc. distributed the 4,775,272 common shares and 795,878 8.75% Series A Preferred Shares (with a liquidation preference of $25.00 per share) in Imperial to holders of StealthGas Inc.’s common stock on a pro rata basis (the “Spin-Off”).

The Company’s fleet comprises 4 tankers consisting of 3 medium range (M.R.) type product tankers and one aframax crude oil tanker providing worldwide marine transportation services under long, medium or short-term charters.

The Company’s vessels are managed by Stealth Maritime Corporation S.A. (the “Manager”), a company controlled by members of the family of the Company’s Chief Executive Officer. The Manager, a related party, was incorporated in Liberia and registered in Greece on May 17, 1999 under the provisions of law 89/1967, 378/1968 and article 25 of law 27/75 as amended by article 4 of law 2234/94. (See Note 3).

Shares Outstanding:

As of December 31, 2021, IMPP had 4,775,272 common shares outstanding and 795,878 Series A Preferred Shares outstanding (which I will discuss later). IMPP did a financing recently in 2022. They issued 9.6 million units which consists of 9.6 million shares and 9.6 million warrants exercisable at 1.25.  Assuming warrants are all exercised, I expect the shares outstanding to be 23.6 million.  And I assume cash position has gone up by $34 million (1.25 * 9.6 million shares)

Quality Shareholders

At least 3 respected value investors each own millions of shares in this name.

1. MSD Capital (family office of Michael Dell)

2. Towerview (Tisch Family) whose uncle James Tisch made a huge bundle of money buying some oil tankers.  (See article in this link https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/tisch-brothers Excerpt: Typical of the Tisch operations was the 1982 purchase of seven oil tankers for $42 million at a time when the oil business was severely depressed. The price was quite low, and Laurence Tisch calculated that even if the industry did not recover, the ships might be sold profitably for scrap. After chartering them for a few years Loews sold one tanker for $15 million and in 1990 sold a half share in the remaining six for $154 million.)

3. CEO and Harry N Vafias who owns XXX and happens to be the CEO.

Who is Harry Vafias and his other companies?

The typical biography profile on Bloomberg shows the following:

Harry N. Vafias - President, CEO and member of the Board of Directors. Mr. Vafias has been actively involved in the tanker and gas shipping industry since 1999. After graduating from City University Business School in the City of London in 1999 with a B.A. in Management Science and from Metropolitan University in 2000 with a Masters degree in Shipping, Trade and Transport, he commenced working at Seascope, a leading ship brokering firm specializing in sale and purchase of vessels and chartering of oil tankers. Mr. Vafias also worked at Braemar, a leading ship brokering firm, where he gained extensive experience in tanker and dry cargo chartering. Seascope and Braemar merged in 2001 to form Braemar Seascope Group plc, a public company quoted on the London Stock Exchange and one of the world's largest ship brokering and shipping service groups. From 2000 until 2004, he worked at Brave Maritime and Stealth Maritime, companies providing comprehensive ship management services, where Mr. Vafias headed the operations and chartering departments of Stealth Maritime and served as manager for the sale and purchase departments of both Brave Maritime and Stealth Maritime.

Further research shows some interesting information especially the sentence I highlighted in bold. 

He is the founder of Stealthgas. He was born in 1978. He comes from a rich Greek shipping family. His grandfather from the island of Chios started with nothing and built up one of the largest meat-trading businesses in Latin America. His father Nicholas had launched his Brave Maritime shipping company in 1972 and also invested in real estate. His father gave him USD4 million to start a tanker company which he called Stealth Maritime because he planned to build it step by step without attracting too much attention.

StealthGas

StealthGas Inc is an international shipping transportation company specialized in the transportation of various petroleum and petrochemical gas products. The company is the world’s largest owner of LPG pressurized carriers in the strategic 3,000-8,000cbm segment.

The company owns 4  large oil tankers: the Stealth Berana, the Clean Trasher, the Magic Wand and the Falcon Maryam.

Stealth also owns 49 LPG tankers and 5 freighters.

Harry Vafias Net Worth

His net worth is $500 million.

Here is the table of the Beneficial Owners

Balance Sheet

The company has no debt has a net equity of approximately $122 million as of December 31, 2021.  After the recent offering, cash increased by roughly $36 million and shares outstanding went up by 19.2 million shares.  The company’s assets are 4 oil tankers.

Positive Operating Cash flow

Oil Prices, Energy Prices, shortage of booking shippers, shortage of steel, new ships coming.

In 2020-2021, we already saw a lot of shipping rates going up because of inflation, shortage of raw materials, shortage of new tankers coming into the industry, long waiting list of new tankers coming.  Oil hit over $100.  No one knows how much higher prices will go with Russia’s invasion of Ukraine. 

You can google oil tanker rates and you see various articles. Here is an example.

https://www.reuters.com/business/energy/global-oil-tanker-rates-jolt-higher-high-fuel-prices-risk-premiums-2022-02-25/

Preferred Shares:

There is a net parent investment amount of about $123 million in the balance sheet, which is in the form of 795,878 Series A Preferred Shares in Imperial. On December 3, 2021, StealthGas Inc. distributed the 4,775,272 common shares and 795,878 8.75% Series A Preferred Shares (with a liquidation preference of $25.00 per share) in Imperial to holders of StealthGas Inc.’s common stock on a pro rata basis (the “Spin-Off”).  Specifically, Haffy Vafias owns these preferred shares. I see this as an owner oriented preferred owner who owns both the equity and the preferred.  He will probably convert his preferred to equity at desirable prices, but certainly it is going to be at a much higher price than the current stock price. 

Valuation:

I expect rates to triple over the next 12 to 24 months. I expect EBITDA to reach $25 million.  Using an 8 times EBITDA multiple, Net cash of $35 million, treating the preferred shares as debt, I still come up with a $4.72 per share price valuation for the stock. Now, I think I am being extreme when I treat the preferred shares as debt.  I assume the owner will convert his preferred shares to common shares opportunistically over time.  So, you can run various Monte carlo simulations and still come up with a stock price valuation that is at least twice the $1.48 stock price. 

Catalyst

Rising shipping rates for oil tankers

Russia's invation of Ukraine