Teekay Tankers (SELL, USD 0.7): Challenging liquidity position ahead of the cyclical trough. TP revised down from 1.2

The company recently announced the acquisition of Tanker Investments in an all-share deal on a NAV-for-NAV basis, leaving TNK’s old shareholders with ~68% of the NewCo. The two companies form a natural fit as TNK owns 11% of TIL and already provides technical and commercial management of TIL’s fleet. We do minor downwards adjustments to our fundamental forecast for oil tankers, and believe any seasonal increase in share prices in 2H17 will be temporary. We reiterate our SELL recommendation and downgrade our target price to USD 0.7/sh (from 1.2)


Company overview: After the aforementioned merger with TIL which is expected to be completed in 4Q17, the combined company will have an owned fleet of 28 Aframaxes/LR2s, 26 Suezmaxes and 50% of a VLCC, in addition to four Suezmaxes under sale/leaseback until 2029 and a handful of chartered in vessels.

 Liquidity: We remain concerned about the liquidity situation from 2018E and onwards (USD -164m in 3Q19E), and believe a debt moratorium and/or further sale/leasebacks could help alleviate the situation. The merger with TIL also gives more room for balance sheet manoeuvring.

 Valuation: We calculate a current NAV of USD 2.3/sh, but see downside to current asset prices and dislike the limited cash flow generation. Our target price of USD 0.7/sh is based on a weighted average of current/future NAV and mid-cycle multiples in 2019E at a 25% discount (liquidity concerns).

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