IMPP - Top Ships: Insider Buys Signal Change In Course

2023-12-07 18:11:31 ET

Summary

• The vicious circle of relentless dilution and reverse stock splits to the detriment of common shareholders at Greece tanker operator Top Ships appears to have come to an end.
• In recent weeks, CEO Evangelos Pistiolis has purchased over 25% of the company's free float in the open market.
• In addition, an entity controlled by the Pistiolis family has converted its dilution-protected preferred shares into common stock. In aggregate, the Pistiolis family now holds 73% of outstanding common shares.
• Even after an almost 200% rally from recent lows, shares are still trading at a fraction of estimated net asset value.
• However, with the CEO likely done with open market purchases for now and a sizeable warrant overhang coming into play, I am reiterating my "Hold" rating on the shares.

Note:

I have covered Top Ships ( TOPS ) previously, so investors should view this as an update to my earlier articles on the company.

Following no less than twelve reverse stock splits over the past 15 years, the majority of Greece-based tanker operator Top Ships' legacy equity holders has long been diluted to zero as very much evidenced by the stock's long-term chart:

However, the vicious circle of relentless dilution and subsequent reverse stock splits seems to be over now as Top Ships has apparently become the latest client of controversial investment bank Maxim Group LLC ( FRHC ) or "Maxim" to change course.

Over the past couple of weeks, CEO and Evangelos J. Pistiolis has purchased more than 25% of the company's then outstanding common shares in the open market for approximately $4.7 million:

Even more important, a Pistiolis family-controlled entity decided to convert all of its dilution-protected Series E Perpetual Convertible Preferred Stock into new common shares of the company.

As a result, entities affiliated with Mr. Pistiolis now own 73% of Top Ship's outstanding common shares.

Not surprisingly, the large insider purchases have resulted in the stock price almost tripling from an all-time low of $5.51 on November 10.

But even at $15, the company's shares are still trading at large discount to management's last fully-diluted net asset value ("NAV") estimate of $59.64 (reverse stock split-adjusted) provided in early August.

Since that time, second hand tanker values have increased quite meaningfully but with the company's modern fleet mostly employed on long-term contracts at below-market rates, a sizeable discount to current market values appears to be warranted.

Please note that the company still has a meaningful number of potentially dilutive warrants outstanding:

Particularly the February 2023 and Series C Warrants have the potential to increase outstanding common shares by approximately 30% and due to their reverse stock split-adjusted exercise price of $16.20 are likely to provide a near-term overhang.

With the Maxim-led offerings facing increased scrutiny from the SEC and considering the controlling shareholder's recent actions, further dilutive share and warrant offerings appear to be highly unlikely.

However, based on Thursday's press release , I do not expect additional near-term open market purchases by Mr. Pistiolis:

(...) TOP Ships Inc. (...), announced today that it has issued 2,930,718 common shares pursuant to an exercise notice for the conversion of 100% of the Series E preferred shares held by a trust for the benefit of family members of the Company’s CEO.

Following this issuance, as of the date hereof, the total number of common shares outstanding is 4,626,224, and the CEO together with his family trust owns 3,377,164 common shares, or 73.0% of the outstanding common shares. The common shares issued on conversion of the Series E preferred shares are restricted shares under the Securities Act of 1933, as amended. Along with the shares purchased in the open market by the CEO, these shares have not been registered for resale and may be resold in the open market only pursuant to the volume limitations of Rule 144.

The Company’s CEO said:

“As I have mentioned on various occasions, the recent trading price of our common shares clearly does not reflect the intrinsic value of the Company. I therefore decided, as I have disclosed through recent SEC filings, to acquire a significant shareholding of 446,030 common shares in open-market purchases, thus clearly demonstrating my commitment and support to this company.”

If the CEO would be looking to acquire additional shares in the open market, he would have likely limited his disclosures to SEC filings like he did over the past couple of weeks and abstained from issuing a press release.

Without the ongoing support from Mr. Pistiolis open market purchases, further stock price appreciation would be dependent on market participant's willingness to assign a higher valuation to the refined company, potential speculation on a buyout offer by the Pistiolis family or the story getting picked up by the momentum crowd.

However, with the sizeable warrant overhang coming into play, I am not feeling comfortable assigning a " Buy " rating following the shares' massive run from recent lows.

Bottom Line

Judging by the controlling shareholders' recent actions, Top Ships seems to have become the latest Greece-based nano-cap shipping company abandoning its long-standing strategy of pursuing growth to the detriment of common shareholders

Even after the 200% rally from recent lows, shares are still trading at a fraction of fully-diluted net asset value but with the CEO seemingly done with open market purchases for now and the warrant overhang coming into play, I am keeping my " Hold " rating on the shares.

On the flip side, investors speculating on market participants warming up to the value story or even a buyout offer by the Pistiolis family are not likely to face further dilution from additional share and warrant offerings anytime soon.

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