Hillson Financial Management Reiterates Call for StealthGas, Inc. to Take Immediate Steps to Enhance Shareholder Value

ROCKVILLE, Md., Feb. 11, 2015 /PRNewswire/ -- Hillson Financial Management, Inc. (together with its affiliates, "Hillson"), a significant shareholder since 2005 of StealthGas, Inc., (GASS), today announced that it has delivered a letter to Michael G. Jolliffee, Chairman of the Board of Directors of StealthGas.

The full text of the letter follows:

February 9, 2015

Mr. Michael G. Jolliffee, Chairman of the Board of Directors
StealthGas, Inc.
331 Kifissias Avenue
Erithrea 14561
Athens, Greece

Dear Mr. Jolliffee:

I appreciate your February 3, 2015 letter in response to our January 23, 2015 letter to you.  However, since you characterized our assertions as "misinformed", I would like to set the record straight.

First, you take issue with our use of comps and point, selectively, to some short term data to defend the decline in StealthGas (GASS) shares.  Of course no two companies are exactly alike.  Nevertheless, benchmarking is important, and we use the same companies that GASS has repeatedly used in its own presentations.  Furthermore, our frustration has to do with the Long-Term underperformance of our stock, which pre-dates the declines of the past few months.  We are not "misinformed" about this long term poor performance.  It is clear, and your refusal to even acknowledge it is quite troubling.

Second, you attempted to explain and defend the various related party transactions that we questioned.  However, at no point did you acknowledge the serious conflicts of interest that these arrangements create and the perverse incentives that result, nor did you address how, or even if, these issues are being addressed and monitored by the Board.  Have you done a market check by putting the management of the fleet out to bid?  Have you done a cost/benefit analysis of bringing those functions in house?  These and many other questions deserve answers.

We also reiterate our objection to the Rights Plan in general and the 10% trigger in particular.  You have repeatedly touted the Vafias family's 12.5% stake, yet you have now prohibited anyone else from accumulating a similar sized position.  This raises yet another barrier, particularly for large institutional investors that might have an interest in the stock.  At a time when you should be doing all you can to attract additional investors, such a move is highly disturbing.

Capital allocation is where we believe Management and the Board have done the most damage, but it is also the area where there is the greatest opportunity for improvement.  Since the end of 2012, you have repeatedly diluted existing shareholders through a series of follow-on offerings.  This led to a reduction in book value per share of 17% and an even sharper decline in EPS.  This is not a recipe for growing shareholder value, and it goes a long way towards explaining our stock's poor performance and steeply discounted valuation.

Our suggested combination of aggressive share repurchases and dividends would materially reverse the dilution and be highly beneficial to shareholders.  You labeled our suggested tender price "unwise", even though you eagerly asked investors to pay a significantly higher price less than six months ago, and you ignore the significant accretion that would result.  Our self-tender proposal would instantly boost book value and EPS by double digit percentages, and the accretion would only widen as earnings growth kicks in.  This is not misinformation, it is simple math!

Finally, in your letter you referenced a Deutsche Bank analyst to whom you claim we "apparently made your case".  I'm afraid it is you that is misinformed.  We do not know said analyst, we have not spoken with Deutsche Bank, and we have not even seen the report to which you referred.  We made our case directly to you.  We chose to publish our letters in order to disclose our communications, concerns, and suggested remedies to the broader shareholder and investor community because we thought that transparency was important.

You also quoted the analyst as saying that "GASS is an inherently good company…with very good growth prospects".  We agree!  But prior capital allocation decisions have hurt the stock, and current/future decisions with respect to capital will be of critical importance.  With our stock down over 50% in a matter of months and given the big discounts to book value and our peers, this should be an "all hands on deck" moment, yet you act as if nothing is wrong, no mistakes have been made, and you dismiss our suggestions.  We urge you once again to reconsider.  Harry Vafias already publicly acknowledged that GASS had $60 million in excess equity capital, and that was before the two recent sale-leaseback transactions!  You have already acknowledged the wisdom of buybacks with the current repurchase plan, but more dramatic action is called for.  If our $8 self-tender target is a point of contention, we would happily support a lower, achievable price, as this would be all the more accretive.  The key is to commit to a more aggressive plan, but you have resisted doing so.

We began this dialogue with the hope of highlighting past mistakes and offering solutions.  Thus far, our efforts at engagement have been met with denials, counter-arguments, and a poison pill.  It remains our sincere hope that this exercise will prove to have been constructive and that the Board will take decisive action to improve shareholder value by embracing our recommendations, at least in some form.  However, this circular process of us pointing out areas in need of improvement and you denying the weaknesses and ignoring the suggestions is not constructive.  We are simply asking that you expand a program you have already embraced (share buybacks), return to a strategy that was previously a core part of your value proposition (dividends), and work to ensure that corporate governance issues are appropriately addressed.  This should be an easy conversation!  We are prepared to wait a bit longer for movement on your end.  However, if we do not see some meaningful action within the next 30 days or so, we will assume that no such action is forthcoming.  We will then assess our options to enhance shareholder value through external means, having failed to convince you to do so internally which we would very much prefer.

As always, I am available to discuss these matters further, and can be reached at (301) 340-0003 or [email protected].

Sincerely,

Daniel H. Abramowitz

About Hillson Financial Management, Inc.

Hillson Financial Management, Inc. ("Hillson") is a Registered Investment Advisory firm specializing in small and microcap value stocks, high yield debt, and private equity investments.  Hillson was founded in 1990 by Daniel H. Abramowitz who is the current President and sole owner of the firm.

Contact:
Daniel Abramowitz, (301) 340-0003
[email protected]

SOURCE Hillson Financial Management, Inc.