Brian Hennessey of Alpine Woods Capital presented his in-depth investment thesis on Diamond S Shipping (US: DSSI) at Best Ideas 2020.

Thesis summary:

Diamond S Shipping is an international shipping company specializing in the transportation of crude oil and refined products. It owns 16 crude and 50 product tankers.

The company was formed in early 2019 when privately owned DSS Holdings purchased Capital Products Partners’ (CPLP) crude and refined products fleet, and shares began trading on the NYSE in March 2019. The company is led by CEO Craig Stevenson, a legend in the product tanker space, having sold his and Robert Bugbee’s previous tanker venture OMI Corp at the top of the market in 2007 for a forward EV/EBITDA multiple of nearly 11x and a forward P/E multiple of nearly 13x.

DSSI’s fleet offers exposure to two of the hottest asset classes in the tanker space: medium-range product tankers and suezmax tankers. A step change in demand from environmental regulations known as IMO 2020 (which will see the largest reduction in Sulphur content of transportation fuel at one time in history), combined with historically low order rates (new supply), an aged worldwide fleet, and increasing ton miles create the perfect backdrop for tanker stocks.

DSSI trades at one of the widest discounts to NAV of the peer group and trades at a consensus 2020E P/E of ~4x and P/FCF of ~3x. By the end of 2020, net debt should be down to at most $500 million and NAV should consequently increase to $26+ per share. At 100% of NAV (the long-term average), that would imply 70+% upside for DSSI.

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About the instructor:

Brian Hennessey began his career in high yield fixed income research at Putnam Investments, then climbed the quality spectrum to investment grade fixed income at Partner Re Asset Management, then whet his appetite in event driven, arbitrage and distressed hedge fund strategies at Tribeca Global Management (unit of Citi Alternative Investments) and Litespeed Partners. For the last 10 years he has been at Westchester-based asset manager Alpine Woods Capital Investors LLC, currently as a manager of several long/short hedge funds focused on real assets as well as “deep moat” companies.