Tufton’s shareholders set fair for hefty cash returns

Ship leasing fund Tufton Oceanic Assets (SHIP:116.5¢) has announced a one-off compulsory redemption of shares to return $31.5mn (£24.8mn) to shareholders at the attributable net asset value (NAV) per share on 30 June 2024. The capital return is being funded from the $41.75mn proceeds from the disposal of two Handysize product tankers which were sold at a 3 per cent premium to book value. The board expects to announce its next quarterly NAV on 17 July 2024 and to make the compulsory redemption in early August 2024.

Bearing this in mind, Tufton delivered a NAV total return of 4.5 per cent in the first quarter of 2024, which increased NAV to $436mn (149.6¢). The positive momentum is likely to have continued, a point I made when I suggested buying the shares, at 109¢, when I covered the annual results (‘Lock in this shipping fund's 9% yield’, 21 March 2024). It means that shareholders can expect 7 per cent of their holdings to be bought back at a premium of at least 28 per cent to the current share price. Moreover, Tufton pays a quarterly dividend per share of 2.5¢ (2p), which underpins the 8.6 per cent dividend yield. There is obvious value on offer here.

Sensibly, the investment manager is also asking shareholders at the general meeting on 11 June 2024 for permission to amend the investment restrictions on the fund to align them with market opportunities. That’s because no more than half the fund is allowed to be invested in any shipping segment (tankers, general cargo, containerships and bulkers). It prevents Tufton from adding to its tanker segment (gas tankers, product tankers and chemical tankers), which now accounts for 56 per cent of NAV due to rising tanker values.

Having astutely called the market and realised a net internal rate of return of 27 per cent from its containerships from 2018 to 2023, Tufton is now invested in two segments of the shipping market (tankers and bulkers), both of which have sound prospects. Importantly, the fund uses low levels of leverage and has high charter coverage to limit volatility, so shareholders can accept a higher level of concentration risk in key market segments to enhance returns. They can also expect the 23 per cent share price discount to a rising NAV to continue to narrow. Buy.

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