Sunday, May 25, 2008

Window of opportunity

My belief is that the coming TOPS quarterly earnings report should show improved results due the bulk carrier deliveries and especially the firmer tanker markets since 4th quarter 2007. The recent PIPE will improve the company liquidity with a new cash injection. The transaction costs will probably fall in the next quarterly report. The recent vessel sales, albeit at often disappointing price levels, allow some fleet consolidation that mitigates the rapid expansion.

TOPS faces significant future challenges. They have on order 6 product carriers coming up soon for delivery. Many forecasters express concern about the size of the order book and predict a fragile market prone to rate deterioration. The product sector is open to the risks of a more severe than expected US recession as well as possible 'cannibalization' of the product tanker market in the ME with increased use of local feedstock for chemical production at higher margins. TOPS has a relatively high cost structure that needs to be streamlined to be competitive with other operators. Their fleet of Suezmax, which is an important profit center, needs replacement and renewal. Finally TOPS has significant problems in its relations with institutional investors that need to be resolved. These risks can lead to rewards if properly managed.

For fundamental improvement in shareholder value, the TOPS management has a significant opportunity to prove themselves, take advantage of a growing experience curve and turn things around. Perhaps the expanded financial involvement of George Economou with his uncanny market instincts will assist in improving earnings. Hopefully TOPS will resolve outstanding issues with institutional investors and seek to revamp its BoD to reverse the generally mixed brand image of the company.

Management should recognize that improved financial performance and better shareholder value will increase the financial independence of the company. It will also reduce cost of capital hopefully leading to a premium instead of discount in raising new equity for future needs.

TOPS stands at a critical crossroads presently for its future. Its management should seize the opportunity!