Research Note - Algoma Central Corporation (ALC:TSX, $17.65|BUY $25.00 TARGET) - Special Dividend Of $1.35 Per Common Share
Algoma Central Corporation announced a special dividend of $1.35 per common share on December 14th, 2022. The dividend is payable on January 18th, 2023, to shareholders of record on January 4th, 2023. The special dividend comes as anticipated in our previous note, where we indicated the strong cash balance of $136.6M offered the potential for such a dividend. The dividend will reduce cash on balance by $51.037M, leaving ~$85.6M of cash on balance excluding the recently announced doubling of its investment in the FureBear JV and purchase of four additional dual-fuel ice class 1A product takers with Furetank AB. We are maintaining our price target of $25.00.
The special divided comes approximately 2 years after the last special dividend announced on January 12th, 2021 and comes as a reward to shareholders of ALC in the amount of $1.35 per common share. The dividend is payable on January 18th,2023, to shareholders of record on January 4th, 2023. The total cash cost of the dividend is $51.037M, and leaves approximately $85.6M of cash on the balance sheet. ALC closed on December 13th, 2022, at $16.69.
Investment in FureBear
ALC’s joint-ventuer with FureTank AB represents a total fleet investment of eight vessels with dual-fuel capability to run on LNG/LBG or gasoline. The vessels are fully equipped for shore power and are designed with a battery hybrid solution among other innovative features that reduce fuel and energy consumption. Construction of the four new vessels will take place at China Merchants Jinling Shipyard in Yangzhou, China, and are expected to be delivered between 2023 and 2025.
The vessels are in line with environmental transition initiatives and will provide ALC with a fleet of eight vessels serving out of Gothenburg, Sweden. All eight vessels will be entered into the Gothia Tanker Alliance.
We are awaiting clarity on costs associated with the increased investment in the FureTank JV, and the four additional ships on order.
The special dividend proves our conviction in the operational proficiency of ALC. Shareholders can expect to be occasionally rewarded with special dividends as in the case of the today’s announcement. We are maintaining our price target of $25.00, and expect ALC to continue operating with full, or near full fleet utilization.