Pyxis Tankers: Strong Quarters Ahead But Issues Remain (NASDAQ:PXS)

Today I’m going to check out Pyxis Tankers (NASDAQ:PXS), a Greece – based, small, oil – tanker company. The last time I wrote about the company was about one and a half year ago, when I had issued a “Hold” rating. Obviously, I failed to see the upcoming rally in the oil tanker market, that occurred next year. In the following paragraphs I’m going to outline the pros and cons of the company, and explain why I believe that still, the “Hold” rating is the most appropriate.

The fleet

We’re talking about a really small company here, as its fleet is comprised of only 5 eco – MR vessels, with an overall capacity of 250k dwt and a weighted average age of 9.4 years. The company is following a mixed utilization approach, with two of its vessels being deployed in the spot market and the rest operating under time charter contracts.

As we can see in the graph listed above, the newest of the company’s vessels, Pyxis Lamda, has at least three months remaining on its current time charter contract, while Pyxis Epsilon, the second newest vessel, is chartered until September 2023 at least. These two vessels are chartered at a gross rate of $40k and $30k per day, respectively. The third vessel that is chartered out is Pyxis Karteria, but its contract was due for renewal this January. While a two month extension period applies, I have no information regarding its current status.

However, we can also see that the rates for MR vessels are significantly lower than those described in the previous paragraph. More specifically, current time charter rates for eco – MR vessels range from $24k to $27.5k per day, across all contract time frames.

So, here I’m going to say what I usually say about companies operating in the time charter segment, at least partially: Time charters can either make you or break you. In this case, it is probably the latter that is true. The company has secured above market rates for the whole duration of Q1 2023, for at least 40% of its tonnage. That is, I excluded Pyxis Karteria from this assumption, although its $30k per day rate was true for the most part of January. According to the company’s January 2023 Investor Presentation, 53% of the available Q1 2023 days have been booked at a daily rate of $32.5k, while the preliminary average TCE for Q4 2022 is $33.4k per day.

Low order book creates favorable supply outlook

Order book of new MR vessels was at a very low point, at the end of 2022, reaching 4.9% of the total oil tanker fleet worldwide. This percentage translates to 87 new MR vessels, of which, 34 were ordered during 2022, with deliveries moving into 2025. At the same time, according to Clarkson’s, 8.9% of the global oil tanker fleet are aged 20 years or more, with an expected vessel economic life of 25 years. In addition, new and stricter environmental regulations along with higher scrap prices will accelerate the overall fleet shrinking process, thus, supporting high spot and time charter rates.

Revenue and earnings expectations

For the third quarter of 2022, Pyxis Tankers reported an EPS figure of $0.42, with total revenues reaching $17 million. Based on the data presented earlier, but with cost of capital being significantly higher, I expect Q4 2022 EPS to be in the same area. Let us not neglect the fact that the company is in its growth phase and, thus, it is quite leveraged. As we can see in the graph listed below, the company has a Debt to Equity ratio of 1.77, which is many times higher than that of some of its larger peers.

Most of its debt is in floating rate, which puts the company in interest rate risk, despite its efforts to reduce this risk using credit swaps. According to the company’s Q3 2022 earnings call, average interest rate at the end of the quarter was 5.9%, with the first maturity being in 2025.

Some final thoughts

Despite another anticipated strong quarter, the truth is that the company has struggled to reach profitability during the last 5 years. During that time, they have used a combination of private placements and debt in order to support their growth. On the bright side, the situation seems quite favorable for at least two more quarters. The company’s mixed strategy, utilizing both time charters and the spot market, seems to be working out, as it takes advantage of the strong market fundamentals. To some extent, a potential market slowdown will be counterbalanced by the current order book, which has hit 30 – year lows.

From a technical perspective, we can see that the share price has recently confirmed its upward trend, which is further strengthened by the Fibonacci retracement support. However, the next Fibonacci resistance is also amplified by the 50 – day moving average. In addition, there is a divergence between the share price movement and the RSI, which is following a downtrend. These mixed signals make me look away from a “Buy” rating on the stock. However, for those that have already a stake in the company, I believe that holding would be the wisest of options.

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