High Ships: Insider Buys Sign Change In Course (NASDAQ:TOPS)

Word:

I’ve coated High Ships (NASDAQ:TOPS) beforehand, so buyers ought to view this as an replace to my earlier articles on the corporate.

Following a minimum of twelve reverse stock splits over the previous 15 years, the vast majority of Greece-based tanker operator High Ships’ legacy fairness holders has lengthy been diluted to zero as very a lot evidenced by the inventory’s long-term chart:

Nonetheless, the vicious circle of relentless dilution and subsequent reverse inventory splits appears to be over now as High Ships has apparently turn into the most recent consumer of controversial funding financial institution Maxim Group LLC (FRHC) or “Maxim” to vary course.

Over the previous couple of weeks, CEO and Evangelos J. Pistiolis has purchased greater than 25% of the corporate’s then excellent widespread shares within the open marketplace for roughly $4.7 million:

Much more necessary, a Pistiolis family-controlled entity determined to convert all of its dilution-protected Sequence E Perpetual Convertible Most popular Inventory into new widespread shares of the corporate.

Because of this, entities affiliated with Mr. Pistiolis now personal 73% of High Ship’s excellent widespread shares.

Not surprisingly, the massive insider purchases have resulted within the inventory value nearly tripling from an all-time low of $5.51 on November 10.

However even at $15, the corporate’s shares are nonetheless buying and selling at massive low cost to administration’s final fully-diluted web asset worth (“NAV”) estimate of $59.64 (reverse inventory split-adjusted) provided in early August.

Since that point, second hand tanker values have elevated fairly meaningfully however with the corporate’s trendy fleet principally employed on long-term contracts at below-market charges, a sizeable low cost to present market values seems to be warranted.

Please word that the corporate nonetheless has a significant variety of probably dilutive warrants excellent:

Significantly the February 2023 and Sequence C Warrants have the potential to extend excellent widespread shares by roughly 30% and as a consequence of their reverse inventory split-adjusted train value of $16.20 are possible to supply a near-term overhang.

With the Maxim-led choices dealing with elevated scrutiny from the SEC and contemplating the controlling shareholder’s current actions, additional dilutive share and warrant choices look like extremely unlikely.

Nonetheless, primarily based on Thursday’s press release, I don’t anticipate further near-term open market purchases by Mr. Pistiolis:

(…) TOP Ships Inc. (…), introduced right this moment that it has issued 2,930,718 widespread shares pursuant to an train discover for the conversion of 100% of the Sequence E most popular shares held by a belief for the good thing about members of the family of the Firm’s CEO.

Following this issuance, as of the date hereof, the overall variety of widespread shares excellent is 4,626,224, and the CEO collectively together with his household belief owns 3,377,164 widespread shares, or 73.0% of the excellent widespread shares. The widespread shares issued on conversion of the Sequence E most popular shares are restricted shares beneath the Securities Act of 1933, as amended. Together with the shares bought within the open market by the CEO, these shares haven’t been registered for resale and could also be resold within the open market solely pursuant to the quantity limitations of Rule 144.

The Firm’s CEO stated:

“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 can be trying to purchase further shares within the open market, he would have possible restricted his disclosures to SEC filings like he did over the previous couple of weeks and abstained from issuing a press launch.

With out the continuing help from Mr. Pistiolis open market purchases, additional inventory value appreciation can be depending on market participant’s willingness to assign a increased valuation to the refined firm, potential hypothesis on a buyout supply by the Pistiolis household or the story getting picked up by the momentum crowd.

Nonetheless, with the sizeable warrant overhang coming into play, I’m not feeling snug assigning a “Buy” ranking following the shares’ huge run from current lows.

Backside Line

Judging by the controlling shareholders’ current actions, High Ships appears to have turn into the most recent Greece-based nano-cap delivery firm abandoning its long-standing technique of pursuing progress to the detriment of widespread shareholders

Even after the 200% rally from current lows, shares are nonetheless buying and selling at a fraction of fully-diluted web asset worth however with the CEO seemingly performed with open market purchases for now and the warrant overhang coming into play, I’m preserving my “Hold” ranking on the shares.

On the flip facet, buyers speculating on market members warming as much as the worth story or perhaps a buyout supply by the Pistiolis household should not prone to face additional dilution from further share and warrant choices anytime quickly.

Editor’s Word: This text covers a number of microcap shares. Please pay attention to the dangers related to these shares.