d'Amico International Shipping SA

MIL:DIS

Earnings Call Analysis

Strong Earnings and Positive Outlook

In Q3, profits increased by EUR 5.3 million to EUR 48.9 million, with strong year-to-date earnings of almost $150 million buoyed by robust spot markets. Cash decreased to EUR 113 million due to vessel acquisitions and share repurchases. Vessel values rose and a positive market outlook is supported by limited future vessel deliveries and an aging fleet likely to spur demolitions. Dividends could increase next year, reflecting current strong markets. The strategic approach includes controlled fleet growth, deleveraging, and a potential increase in shareholder returns through dividends and buybacks. The existing fleet's age positions the company to benefit from the future market dynamics without immediate fleet expansion.

Financial Performance and Market Position

The company has delivered strong financial results, with profits in Q3 this year nearly touching $50 million (EUR 48.9 million), marking a notable increase from Q3 '22's profits by EUR 5.3 million. Cumulatively, in the first 9 months, profits soared to almost $150 million, significantly surpassing the previous year's performance during the same period. This robust financial growth was fueled by a vigorous spot market, where the company achieved an average rate of 33,400.

Market Outlook

The company's leadership provided an optimistic market outlook, considering the dynamics unchanged since their last update. They noted an appreciable improvement in rates since the onset of the Ukraine War. With sanctions altering trade routes, Russian exports have branched out to more distant regions like India, China, and Brazil, thereby increasing ton miles for both Russian exports and European imports. Despite the predicted deficits owing to OPEC+ cuts, steady crude flows have been maintained due to OPEC members exceeding their quotas, amongst other factors, balancing out the reductions. The company anticipates stronger support from non-OPEC countries increasing crude oil production and foresees a positive demand outlook for the industry. On the supply side, factors such as the aging fleet and limited new shipbuilding orders due to uncertainties regarding future fuels contribute to a flat or near-flat fleet growth, reinforcing the positive market sentiment for the foreseeable future.

Net Asset Value and Share Price Discount

The company reported an increase in per-share Net Asset Value (NAV) from EUR 7.1 million to EUR 7.9 million. The absolute NAV grew from EUR 870 million to EUR 947 million, which includes the value of purchase options on vessels, estimated at EUR 34 million. Despite a share price improvement, the company's shares traded at a 30% discount to NAV, a slight decrease from 38% previously noted, indicating potential market undervaluation.

Dividends and Company Policy

When inquired about dividend distribution, the company indicated that the interim dividend reflects the strong market, hinting at the likelihood of increased cash distributions next year if favorable market conditions persist. This aligns with their approach of distributing a higher percentage of profits as dividends as leverage ratios improve, evidenced by this year's total dividends of EUR 42 million comprising both final and interim dividends.

Fleet Growth and Demolition Wall

The company addressed concerns about an increase in shipbuilding orders by clarifying that most new deliveries are slated for 2026 or later, with a portion of the fleet now exceeding 20 years of age likely to become candidates for demolition starting in 2022. The expected demolition wall would significantly benefit the market as older vessels reach the 25-year mark and become less viable for trade. Inflationary pressures on yards and rising steel costs are unlikely to result in a significant increase in production capacity, pointing toward controlled annual deliveries and fleet growth, which the company believes will be supportive for the market.

Spot Rates and Operating Costs

The company indicated a current average spot rate of nearly 30,000 with expectations of improvement in Q4 based on historical trends. Although it is challenging to predict the worst-case scenario for spot rates, optimism remains for strong market support in the future given geopolitical developments and low expected deliveries. Moreover, other direct operating costs averaged EUR 7,500 for the first nine months compared to EUR 7,800 in the first half of the year, potentially allowing for a lower average by year-end. Q4 estimates suggest that costs should at least align with the previous quarter's numbers, if not improve, encapsulating some unpredictability in cost estimates.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon. Welcome, and thank you for joining the d’Amico International Shipping Third Quarter and 9 Months 2023 Results Conference Call. [Operator Instruction]. At this time, I would like to turn the conference over to Mr. Paolo d’Amico, Chairman and CEO. Please go ahead, sir.

[Paolo d'Amico, executive]

Thank you. Hello to everybody, and welcome to our usual quarter call. Thank you to be with us. Going through the presentation, we would jump the executive summary as usual because we are not complicating things. Sales right, I pass on the floor to Carlos Balestra, who is our CFO.

[Antonio Carlos Balestra Mottola, executive]

Thank you, Paul, and good afternoon to everyone. So we start, as usual, with our fleet overdue. As of the 30th of September, we control the fleet of 36 vessels, so the same as at 30th of June, when we last presented of our results, but the fleet composition changed slightly. So now we have 26 old vessels, so 2 more than 30 of June and we have 3 bareboat chartered in vessels instead of 5, which we had last time. We still have 7 vessels chartered in. And of course, our main segment is still the miles where we control 24 vessels and then have an eco-presence on the other ones, Ken Henry’s. Yard fleet, 8.3 years average age relative to an industry average of 12.5% for DMRs and 13.7%, 20 and onwards. And mostly Eco-design. This percentage has been rising over the course of the last few years that should continue rising in the future. We have such a young fleet because of the important new building program which we were involved with through which we ordered 22 vessels since 2012 and which was delivered to us, all of them by the end of ’19 [Technical Difficulty]. We continue with the presentation. So CapEx commitments for the full year and the maintenance CapEx expected is of EUR 11.1 million. And that figure is slightly down from what we had anticipated at the beginning of the year. That's because of 2 dry docks were postponed to next year. So at the beginning of the year, we expected a maintenance CapEx of EUR 14.5 million. And then, of course, the maintenance CapEx for ‘24 now is a late at EUR 6.4 million, which is higher than what we initially forecasted of $3.3 million. Of course, then the other big investment this year was the exercise of the purchase option on the high Explorer for around $30 million, which was the best [indiscernible] delivered to us. Going on to the following slide. Here, we show backed up repayments. We used to show also the upcoming balloons, which had to be refinanced, but they are not here shown because they are none upcoming in the next 2 years or so. The first balloons we have are only at the end of 2026. That is, of course, a positive for us and the daily loan repayments on our loans have been falling as a result of the purchase offers we have been exercising and some of these vessels, we have kept in that fee. Also the new loans that we recently draw down or had a slightly longer maturity profile, which also helped in this respect. Going on to the following slide, the purchase options on the leased vessels. So there are only 3 labs now, which can be exercised next year and 1 in September ‘25. So yes, we will eventually be exercising these options. Some of them quite be to exercise early. Maybe one of them we might wait closer to the purchase obligation date, which is the change booster. But we will eventually, of course, be exercising all of these and reducing our breakeven by doing so. And going on to the following page, we show the vessels which are franchised in on which we have purchase options. To are already exercised. They were denominated in yen because of the strong depreciation of the yen relative to the U.S. dollar, it was particularly attractive. The remaining 4 are also very attractive as we will see later when we look at our NAV, we have also included the value of these options now in our NAV calculation. They are all in the money, and they can all be exercised. So something might happen also on this front depending on how the market develops. And here, we show instead our coverage and our Q4 coverage now is at 33% of the available vessel days at an average rate of almost 28,000. And we have also increased our coverage for 24%, which now stands at 25% at an average rate of 26,600. We have recently fixed 3 Handys and 1 L1 on time charter contracts, and that has contributed to this increase in the coverage for 2024. So 26,600 is lower than what our vessels are earning on the spot market today, but it's still a very good rate. and it provides us some good visibility on the earnings already for next year, which –Going on to the following page, we show here, we have some [indiscernible] on how we have been trading in Q4, and we have 33% of the available days in the quarter, which were fixed through TC contracts at an average rate of 27,900 and another 33%, which was fixed on spot voyages at an average rate of almost 39820. Giving a blended rate for 2/3 of the days in the quarter of almost $29,000. And so hopefully, we can do even better than that by the end of the quarter. Usually, we see the market strengthening in the second half of November and in December, and we expect the market to follow that trend also this year. Going on to the following page, Page 14, we show our fleet evolution. And we show at the bottom left, the recurring results on the fixed contract base, so both time charter and spot contracts already fixed. And for '23, we are already at $182 million for $24 million. We are at $35 million. So we are starting to have some visibility also on the 2024. What does that mean for the full year '23? Well, those figures we are showing here on the bottom, they are just potential scenarios, which will help you investors and analysts then make your own assumptions. We are not providing guidance here. But if we were to earn $25,000 per day on the remaining 3 days, our profits for the year '23 would be EUR191 million at $30,000 per day on the remaining 3 days, our profit for the year would be almost $170 million. For 24 instead at $35,000 per day on the free days, our profits would be of EUR 123 million and of almost EUR 170 million and $30,000 per day. So very, very strong results potentially if the spot market continues being as strong as this year, where we were on average above $30,000 per day. Going on to our daily operating costs. As was expected this year, we saw an increase in these costs. We have been pretty flat between '19 and '22. But this year, as most of the sectors, we were confronted with important inflationary pressures, which affected, of course, also the crew wages for us, but also insurance costs because we had to ensure our vessels at much higher values, reflecting the current market values. And of course, that will also contributed to the increase in direct operating costs. There were also an increase in cost for spare parts. But the good news here is that as we had expected, the daily operating costs for the 9 months of this year are lower than they were in the first half of the year where we were at around 7,800 and now we are below 7,000 pipeline. So there is an improvement there, which was anticipated by us. But we are glad we are seeing that in the actual figures.And on the G&A front, there was a big increase this year. A lot of that increase is linked to variable remuneration, which is connected to the very strong results that we achieved in 2022, and we have been achieving this year. A lot of this increase will unwind eventually it markets correct. Of course, we don't expect that to happen soon. But it is above safety buffer, which we have. And so not all of this increase is permanent to improve in G&A. Here, we are showing instead the ratio between the fleet market value and our net financial position as well as some key balance sheet figures. This ratio improved from 36% at the end of '22 to 21.5% as of 30th of September. As at the end of June, it was around 25%. So it improved also relative to the end of the first half, and we expect it to continue improving, although at a lower pace going forward. It will continue improving because we expect to continue generating a substantial amount of cash in Q4 this year and also next year.And we ended the quarter with $105 million in cash, which is slightly less than our cash balance at the end of the first half of the year and at the end of last year. At the end of the first half, we had EUR 113 million in cash. The decrease is due to the fact that we took delivery of 2 vessels on which we have exercised purchase options in Q3 this year. And it's due to the share repurchases for EUR 6.1 million, which took place in Q3 this year. Vessel values increased slightly during the quarter, which also helped this ratio improve. Going on to the following slide, we show our results, key P&L line items for Q3 and for the 9 months this year and for the same period last year. And in Q3 this year, our profits were almost $50 million, so EUR 48.9 million. So EUR 5.3 million more than our profits in Q3 '22. And in the first 9 months, our profits were almost $150 million. So well above what we achieved in the first time out of last year. These very strong results were achieved because of the very strong spot markets that we benefited from this year. And our average rates in the year of the spot market was of 33,400. And we have seen that there was a slight correction between Q1 and Q2 and the average spot rates achieved. But since that average spot rates have kept pretty steady. And if you look at the blended rates, so including also the time charter contracts in Q2 this year and in Q3 this year, they're actually pretty much aligned. That's only a $30 per day difference. We achieved 3,860 in Q3 this year. This is it for the financial highlights, and I pass it over to Paolo for the market overview.

[Paolo d'Amico, executive]

Thank you, Carlos. Looking to about the market. Not too many things have changed since we last met. If we look at the asset values, what we can say that the rates improved quite a lot from the start of the Ukraine War and also the values, but the values have been not so fast as the rate are [indiscernible]. This is quite normal because the values of ships they follow after a time element, the improvement on rates. On the refined products from Russia, it happened what we forecast really since the caps, it's sanctions, the flow has been diverted from Russia to Europe. And they go even more further away like India, China, Africa, Turkey and Brazil and middle East. So more ton miles for the Russian exports and also more ton miles for the European imports. Everybody was predicting deficit due to the OpEx plus cuts on production for the second half of this year. But what we are experiencing today that the flow of crude list is basically steady. So this cut has been offset by a few elements. And I suppose these elements come from OPEC members who are supplying more than their quarters. The Venezuela opening to the United States, which, of course, is not going to be a big increase for our infrastructure problem, but it's going to be increased. And we have most of the non-OPEC countries like the Brazil and today also Guyana, which is a big producer at this point who are camping more. So the so-called cut that Saudi Arabia and nevertheless, acted a few months ago, thanks God for a moment. It's been offset. The throughputs from refinery has been a recovery today, we are in a phase where not all the refineries are out of the maintenance fees in the full maintenance period. So the operational refineries and as a consequence, the flow of cargoes is quite difficult to assess in a full way. Inventories for refined products are low and the cracks even if today, there have been corrected downwards, on some products are still high. We think that NAFTA and Diesel were today not really big winners for next year, they should improve and give us a better growth of 24%. The ‘23 has been fueled more by jet fuel due to many people going back to fly, not as much as we thought. China didn't perform away with many analysts were predicting. The domestic flights are a bit full back to 2019 levels, but below the whole flights low. As I said, we have a strong support from the crude side of the industry because there’s increase of production of crude oil from non-OPEC countries. As a matter of fact, there are quite a number of the LCCs moving in this government, streaming to the U.S. Gulf to North American crude and only 50% of them they are fixed. So the rest is going on fuel speculation. The changes of our refined landscape you know them on the positive side, we have the big part of it coming from Middle East, China and India. On the negative side, we have to keep in mind that the Dangote refinery next year should go to power in Nigeria. This is going to, of course, affect the imports of clean products to West Africa and is going to be a very long program. So it's not going to affect the fleet side. Shell oil is increasing its production, is growing. This is good news because will be an element of more crude coming to the market. And so on the demand side, I would say, overall, the situation, it is still very positive. It's netting up any recession forecasts that have been taken up to now. Looking to the supply side, there are elements to think that devolution should start kicking at a certain point, one because of the new indexes, which are coming into force in Europe, the scars financing for all the vessels, the price of steel, which is still sustained for demolition. And the growing pool of the evolution candidates because the big bulk of the product guys is being built in the first decade of this millennium. So from year 2000 to 2010. These ships are becoming the youngest one is 13 years old, but the oldest one is start being 23 years old. These ships are becoming more and more candidates to be phased out. We have very low deliveries in front of us. The new building orders are very limited due to the price to uncertainty of the fuels for the future. The final result, we have a very low fleet growth, basically flat or very close to flat. I would say overall into the demand element and even more on the supply side, I think the overall look of the market is still positive for quite a while. I leave the floor to Carlos again to comment on refinery.

[Antonio Carlos Balestra Mottola, executive]

Thank you, Paulo. And on here, and it shouldn't come as a surprise, there was a further increase relative to June. So on a per share basis in U.S. dollars. At the end of June, we were at 7.1%. And now we are at almost EUR 7.9 million. And on an absolute basis, our NAV increased from EUR 870 million to EUR 947 million. And this includes, as I was referring to before, also the value of the purchase options on the DCN vessels, which we estimate are in the mining for EUR 34 million as at the end of September. So as of the end of September, transmitting our closing share price into U.S. dollars, we were at a discount of 38% to NAV. Since then, the share price traded up a bit. And therefore, using yesterday's closing share price of discount to our NAV was slightly lower. It was of 30%, still substantial but slightly. So there's still a lot of upside here also taking into account the fact that our NAV should continue rising, especially because of our strong forecasted cash generation in the coming quarters. But we also believe vessel value should be well supported. And as we have shown in our presentation, vessel values are still well below the peaks reached in the last super cycle while since third earnings are at the same or higher than they were in that last cycle. So there is still room in period for vessel values to continue increasing. I think that's it.These were the key messages, and we pass over to you for the Q&A session. Thank you very much.

[Operator]

[Operator Instructions]. The first question is from Matteo Bonizzoni of Kepler Cheuvreux.

[Matteo Bonizzoni, analyst]

I have 2 questions. The first one relates to the interim view in distribution. So you are distributing the vacuum on A14. My question is, should we expect more or less similar distribution with the fuel dual [indiscernible] next spring? And does this interim given with distribution has an implication structurally on your future demon policy? And the second question relates to the Slide 34. This should show that building orders are continuing to be under control, but there has been some pickup because there are now 100 vessels, MR and LR1 which have been ordered this year-to-date, which is something which we have not seen after 2015 for several years. So that's pretty natural because the market is very healthy. Just to your feeling, you clearly say that these deliveries will not plan before 2026 or '27. And so I would infer that for at least another 2, 3 years, the fleet growth is well under control. Do you expect further pick up a growth of being activity? Or there is maybe a carport in terms of shipbuilding capacity that presents the evolution?

[Paolo d'Amico, executive]

I'll pick up a second one maybe. The delivery forecast is more than manageable. And most of these ships will come out in 2025. And I can tell you that today, delivery on an MR from, let's say, historical shipyard is not going to happen before end of 2026, and we have started talking early 2027. So if you see the project done, a few of them are still on traditional ships. Some of them are on new dual fuel serves, which have dictated premiums up to $9 million to $10 million on the price of the conventional MR. So we are talking already of ships costing $51 million and which are entering in already program trades with main charters around the world. This is not going to affect to match the existing market the way it is. And still there, we are talking about beginning 2026. I would say that the 24 months in front of us, starting from today are more than controlled. And anyhow after that, things are looking, let's say, in a positive way due to lack of supply.

[Antonio Carlos Balestra Mottola, executive]

I'd like to just add to what Paolo just mentioned that it's also an important consideration that we have already almost 10% of the fleet, which is more than 20 years old. And as Paolo was mentioning, a lot of these vessels are going to be turning 25 years old very soon. Starting from '22, as we show here in this graph, there's quite a steep increase every year almost in the number of vessels that were they delivered in those years. And these are all vessels which are eventually going to become 25-year-olds in a few years' time. So the 22 vessels in 2027 and so forth. And this is really a demolition wall that the market is going to be benefiting from. If you look at the vessels, the millions of deadweight tons that were delivered in '23 and '24, and you compare them to the fleet sites today, it represents potential demolitions of 3.8% around in 2038 and 5.8% in 2029. Now since 2011, we never had deliveries in none of these years, which were higher than 5.8%. With the peak year, maybe it was 6% in 2016 or 1.5 months. I cannot say exactly here. But I mean it's -- and since then, yard capacity for construction of most vessels and in particular, product banking has decreased substantially. Because yards lost money during many years, and they are facing a lot of inflationary pressures and the labor costs as well as higher costs for steel. And so it is very unlikely that we're going to be seeing a big ramp-up in production capacity for the tankers. And therefore, deliveries, even if the yards were inundated with orders, annual deliveries are likely to exceed this number. And we see here in ‘25 that despite the 100 vessels that we’ve ordered today, the annual delivery is just above 2% of the fleet. Here, we are assuming a 0.7% fleet growth because just because of natural scrapping, which is below 2% because we have had very little scrapping over the last few years, and the fleet is aging very fast. This is not driven by a bad market. This is driven by the vessels reaching 25 years of age and just becoming too old to continue trading. It's very, very difficult to trade vessels after 25 years of age. So that should be very supportive for the market going forward. On the dividend front, the interim dividend that we are distributing now, of course, is a reflection of the very strong markets and more will come most likely next year. And if the markets continue being as strong, the expectation instead in next year, we should be distributing more dividends than we distributed this year. That much we can say. We don't have an explicit dividend policy. But what we have said, we try to be consistent here is that as our leverage ratios for, we will be distributing a higher percentage of our profits as dividends. So this year, we had the final dividend of EUR 22 million out of the 2022 results plus the inter dividend of EUR 20 million. Next year, hopefully, we can do better than that in terms of cash distributions.

[Operator]

The next question is from Daniele Alibrandi of Stifel.

[Daniele Alibrandi, analyst]

I have 2. First question on spot rate, and I would appreciate if you can comment both on current trading and more on a longer-term basis. To some questions, basically how the market is evolving on the spot rates because this is the first winter season with the embargo and some peers have even disclosed the higher spot rate booking in Q4 versus Q3. Any comments on the latest weeks despite you provided some visibility on the slide that would be appreciated. And on the more longer term, looking at next year, what do you think would be the lowest level of spot rate below which is very unlikely to end up from your standpoint? So I'm asking basically your worst-case scenario here. And the second question is regarding the other direct operating costs. What was the driver of the decrease in Q3? And what would be a good proxy for Q4, the level of Q3 or the level in Q4 last year?

[Antonio Carlos Balestra Mottola, executive]

Some of them I’m going to say are quite difficult to answer but we will try. So on the spot rates, I think I'll go back to the slide where we give a preview here on what's happening in the market. We are almost at 30,000 of the fixtures so far for the spot days in this quarter. Our expectation here is that we should be able to do at least as well as we have done so far in the remainder of the quarter. That's because usually, we have this improvement in the second half of Q4. And what we usually see is that the crude vessels start running around mid-October and then the product tankers around 1 month later. It's the time which is required for this crude to be transported to the refineries and then for it to be refined and transported by us. So it's not a coincidence that there is the lag of around 1 month. We saw this year also a very important rally on the crude tankers, especially on Aframax and Suezmax, but also the LCCs to a certain extent. So that's promising. It is an indication that there was quite a lot of crude oil moving. And it also supports what we have been seeing in terms of crude oil price, where there has been some weakness recently, which probably reflects a much more balanced market than what was anticipated in the beginning of the quarter, there was this expectation that the market was going to be in deficit. But instead, there is quite a big level of noncompliance by OPEC in terms of cuts, which have been agreed to.Iran has also been has increased its exports this year. More recently, there has been this agreement to allow Venezuela to export temporarily its crude without sanctions, which is not probably going to have a big impact in the market but nonetheless, it's also one factor at play. And therefore, we are quite positive that we are going to be seeing a ramp-up in refining two ports in the second half of November and December. Refineries are still terminating their maintenance programs now. We have actually witnessed over the last week, a strengthening of the market in the Atlantic, but it was mostly driven by the bad weather that we have experienced over the last few days, both in Europe and in the U.S. and to a certain extent, also the Panama Canal restrictions, which are going to become much worse in the coming months, but they are already playing into the psychology in the market into the sentiment, let's say. So when people are fixing vessels in the U.S. today, they have the anticipation that the market is going to become tighter also because of these restrictions in transit on the Panama Canal. And so when they fix owners a firmer in their negotiations and they are able to secure higher rates. So all of that is already contributing to a strong market. And what is missing is the increase in refining throughput, but that is going to arrive. And when that arrives, the market is going to strengthen even more, especially in Asia, where it has been a bit weak over the last few weeks. But hopefully, we are close to a bottom there.And the tougher question you had is the one related to our worst-case scenario for next year. Unfortunately, now we cannot be of much help because our markets are very difficult to predict with precision. We can analyze trends, try to forecast trends, which, of course, also depend on certain assumptions about what is going to happen in the future. But we think that if the political situation continues being like it is today, plus we avoid a deep recession, which I would say is the base case today, especially in the U.S., European economy is a bit less dynamic and showing some more worrying signs of weakness than the U.S. one. But if we are able to avoid that scenario then oil consumption should continue increasing next year and so will refining throughputs and it will further support the market because of the very low deliveries that we are pretty sure are going to happen next year. We are quite positive about 2024 currently. And finally, in terms of the other direct operating costs, for the 9 months of the year, the average was of EUR 7,500 relative to 7,800 for the first 6 months. We do expect that in the Q4, we are going to be seeing a rate, which is probably going to allow us to reduce this average value for the year slightly. So the average value for the full year '23. We don't expect it to be higher than the 7,450 potentially should actually be slightly lower than that. And there's also an element where we renew concentrate purchases of spare parts in the first part of the year, and that also explains why these costs tend to be a bit higher in the beginning of the year and then we tend to fall during the rest of the year.

[Operator]

The next question is from Massimo Bonisoli of Equita.

[Massimo Bonisoli, analyst]

I have 2 questions. One is a clarification on the dividend policy. I understand there is not an explicit policy on shareholder ratio. But if I got correctly from your press release, your intention is to increase the remuneration over the next few years. So I was wondering if this intention is relative to earnings on an absolute basis and if it is including buyback or not. The second question is more a strategic one. You are in a privileged position where you can wait to order new vessels or to substitute all the ones that you mentioned before, you have about 10% of fleet, which is 20% as of -- so at which point in time do you believe you will need towards the new vessel to substitute old 1 or 2 maybe to increase the fleet?

[Antonio Carlos Balestra Mottola, executive]

I'll try to answer the first one in terms of the dividends and the buybacks. You are correct in stating that we actually don't have an explicit dividend policy. And what we have said is that we will be distributing an increasing proportion of our profits as we deleverage our balance sheet. Of course, with our results for some reason, next year which we don't anticipate now were to be much weaker than they were this year. The absolute dividend number for the dividends distributed might actually end up being lower than this year, but they could potentially still represent a higher proportion of the profits that we would be generating next year. So that was the message that we wanted to give to the market. Given our expected developments for the market next year, I think there is a good chance that the absolute number of dividends distributed next year could end up being higher than that which we distributed in 2022.And that is including, let's say, the buybacks. So the buybacks, we momentarily stopped now. We have room to do much more with the authorization that we have would allow us to purchase up to 50% of the shares issued, including the shares already repurchased. The reason we stopped is not because we don't think the shares represent good value anymore. We think they are very attractively priced still. But because we don't want to overdo it and then negatively affect the liquidity of our shares since we already have a controlling shareholder, which has a very significant participation in the company.

[Paolo d'Amico, executive]

Going to the replacement strategy of the fleet with a possible new building program. When the market is troubled the most difficult thing to figure out. Of course, we are opportunistic in the sense that if a deal is where we look at it. And I can tell you, we are looking at a lot of things every day. But due to the values where they are today, is not really feasible for us to do anything. If not to keep going with the politics and the strategy, we always say so deleveraging and distributing dividends. What I can say, abnormally yard, we start worrying 24 months before an expected lack of new orders in the sense if they are, let's say, let's assume as reality is that recipients today they are delivering on something order today. We are going to deliver it in end of 2026, beginning 2027, the moment where the yard will start thinking of the future roles will be second half of 2024. So I would say on this very stupid calculation, but I think, certainly, in 2024, we'll be softly looking at what's going on. But from there to take a final concrete decision to build a ship business, something, which is going to take even more time. I hope it does answer your question.

[Operator]

The next question is from Clinton Molins of Value Investors Edge.

[Clinton Molins, analyst]

I wanted to start by asking about asset valuations. You've made the point that asset values are sitting well below previous peaks despite strong market environment. But what do you think are the main reasons behind this? And secondly, do you expect the spread in valuations between modern and older tankers to continue to widen?

[Paolo d'Amico, executive]

I would say the basic dynamics, you know it better than me. It's a matter of supply and demand. So probably the demand is not as strong yet as it was in the past. Certainly, what is aggravating the sale and purchase market today against us like the past, in the past, you didn't have any technological challenges in front of you. The emission were not a problem. We were not going to enter in a phase where you were going to pay your emissions in Europe. It was a different world. Today, the world is more complicated, and this probably is reflecting in a way also on the value of older ships. So it goes all everything down to supply and demand. Certainly, if you look at the future and the way things are with the supply of new ship restrain where it is and the demolition element, which is kicking in with more and more stress every year, which is passing due to the fact that we said what we said before, the bulk of the product carrier fleet has been built in the first 2, 10 years of this millennium. You see that the element of demand and supply is getting tighter and tighter, and this should be reflected in the value at certain point in more value sector because we already have a lot of value there.

[Clinton Molins, analyst]

And I had another question about the Panama Canal. I know it's not a huge transit point for tankers. And as I understand it, the MRs can also use the old Panama locks, which have not seen that much congestion, but I was wondering whether you've seen any effects from this on the overall market.

[Paolo d'Amico, executive]

The effects of Panama Canal on MRs, we solve them because a lot of MRs have been queuing waiting to pass through the Panama Canal because we restricted the number of ships allowed to pass through. So a lot of supply of tankers has been idle, waiting to pass through the canal. So you have it, we're in an hour, and it's affecting MRs in the same ways affecting many our shares. Of course, the trade of clean products from the U.S. got to Far East is limited to Naphtha, is limited to a few commodities. It's not a main route, let's put it is way, of clean petroleum products. That is affecting any help. And there is another element that is not very much seen in the market, our Jones Act ship because a lot of supply to all the West Coast of United States is coming out of Texas and Louisiana with American flagship. Now these are going to stop, which means that California has to supply California, Oregon and Washington has to supply their own needs from Korea, Japan and China. And you can realize that on mile is going to sky up that. So the Panama Canal can be something which can play quite heavily on the market, at least on the west of Suez market.

[Clinton Molins, analyst]

Congratulations for the quarter.

[Operator]

[Operator Instructions]. There are no more questions registered at this time.

[Paolo d'Amico, executive]

At this point, thank you very much for being with us. I hope we satisfied all your questions. And let's see at the next quarter. Thank you. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.