Category Archives: oil tankers
Although we cannot rule out another dead cat bounce, this year’s winter market has been disappointing. As we predicted, VLCC spot rates peaked at $32k/d, and volatility created opportunities for the attentive investor. However, oil tanker spot rates have averaged $11.7k/d QTD vs our forecast of $13.4k/d, with lower net supply growth (0.3% q/q vs 1.0%) offset by even lower implied demand growth vs our forecast (4.8% vs 7.1%). We downgrade the sector from HOLD to SELL as we see further downside risk to share prices and asset values ahead of the inflection point in mid-‘18E.
- Dong-A Spica & Dong-A Capella said to have been sold @ $48 each to two sperate Greek buyers.
- 10% below our current generic fair value for a similar vessel, which is under revision for downgrade.
- Consistent with our September report where we forecast asset values down ~10% by 2Q18E.
- Last comparable done was the 2018 resale RS Kaystros sold to Polembros @ $49m in late October.
- Key takeaway: Current asset values below current broker quotes + added downside risk as the Winter market draws to an end around 1Q18.
From being ready to write off the upcoming winter season a very short time ago and looking to mid-2018 for any meaningful recovery in share prices, the recent surge in scrapping has left us with a newfound cautious optimism. Using VLCC spot rates as a benchmark, we see average rates of USD 23k/d in 4Q17E with peaks towards USD 32k/d. We see opportunities for the attentive investor in the short term, but believe shares could revert to current levels or below by mid-‘18E, representing the cyclical inflection point. Also taking into account that most share prices have fallen close to our targets; we upgrade the oil tanker sector to HOLD (from SELL) and believe volatility to be key to monetary success for investors over the next six months.
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)
Teekay Tankers today announced the acquisition of Tanker Investments in an all-share deal which values TIL at a 21% premium to last close and which reflects a NAV-for-NAV transaction on our estimates. TIL’s shareholder will end up with 38% of NewCo vs a NAV contribution of ~39% and TNK’s shareholder with the remaining 62% with a NAV contribution of ~61%. We view the transaction as positive for both companies as TIL releases some of the massive discount to NAV which has been inherent in the share price since inception in 2014, and TNK which strengthens the balance sheet and alleviates some of our concerns around the liquidity situation through the trough. The two companies also forms a natural fit as TNK owns 11.3% of TIL and already provides technical and commercial management of TIL’s fleet. We reiterate our SELL recommendation on TNK but raise our target price to USD 1.2/sh (USD 1.1) to reflect the decreased liquidity challenge.
- “Each TIL common share will receive 3.30 Teekay Tankers Class A common shares
representing a 21% premium to TIL’s closing share price on May 31, 2017, and a 29% premium based on TNK’s 30-day volume weighted average price (VWAP)”
- “Creates the world’s largest publicly-traded mid-sized conventional tanker company
with combined total assets of $2.4 billion”
- “Upon completion of the merger, Tanker Investments’ shareholders (other than Teekay Tankers and Teekay Corporation) will own approximately 30% of the combined entity, consisting of 62 conventional tankers, including three in-chartered vessels (30 Suezmax tankers, 22 Aframax tankers, 9 LR2 Product tankers and one 50 percent-owned VLCC tanker).”
After an aggressive M&A attempt by Frontline that by some accounts is still ongoing but from a financial standpoint appears dead, the company acquired BW’s fleet of VLCCs through a combination of new shares and cash, and has emerged as one of the largest listed crude tanker companies with 30 VLCCs and 2 Aframaxes on a fully delivered basis. Although we expect the company to continue scaling down its dividends, we believe DHT has enough cash to maintain a yield of some 3-4% through the trough given its low cash break-even vs peers and recently secured USD 383m in new debt. If our earnings base case were to undershoot significantly, the company can further ease the strain on cash through the abolition of dividends and/or increasing leverage on its balance sheet (net LTV peak at 67% in 3q18E). Despite being our top-pick in the crude tanker sector, we initiate coverage of DHT with a SELL recommendation and target price of USD 4.0 (-6%) given the lackluster short-term outlook for the sector.
Teekay Tankers has a fleet of 41 fully owned Suezmaxes and Aframax/LR2s, a 50/50 owned VLCC in addition to a handful of chartered in vessels. Despite the recently announced divestment of a 1999-built Aframax at USD 7.5m (vs our generic value at USD 9.7m) and the sale/lease-back of four modern Suezmaxes, we see a significant liquidity challenge through the trough. Assuming an abolition of dividends (5.8% yield annualized on last close) and given the Net-Loan-To-Value of ~77%, we expect further fleet divestment to have limited impact. Given our forecast of continued sliding asset prices, we look to a debt moratorium or further sale/lease-backs for a sustainable solution to take the company through the trough without diluting existing shareholders. We initiate coverage with a SELL recommendation and target price of USD 1.1/sh (-49%).
Nordic American Tankers has a fleet of 33 Suezmaxes (incl. three newbuldings) and a 23% ownership in Nordic American Offshore worth USD 15m (USD 0.15/sh). The company is currently priced at a P/NAV of 1.8 (peer avg of 0.9) and a dividend yield of 11% (peer avg 2%), which we see as challenging amidst continued falling asset prices and earnings as the cyclical trough develops. We initiate coverage with a SELL recommendation and target price of USD 4.8/sh (-32%).
Euronav has a large fleet of crude tankers, consisting of 32 VLCCs, 23 Suezmaxes and a 50% ownership in two FSOs on long term charters. The company enjoys a large liquidity reserve and could play to role as consolidator in the current trough, as the company has done in earlier cycles. Despite being one of the best run companies in the industry and currently priced at P/NAV 0.96, we expect continued low earnings and further falling asset prices to weigh on the share price. We initiate coverage with a SELL recommendation and target price of USD 6.2/sh (-21%).
Representing the backbone of Mr Fredriksen’s oil tanker investments and spanning two decades, Frontline is still going strong after several transformational years from the verge of bankruptcy in early 2015 to the current sturdy fleet growth and pursuit of M&A possibilities. Although adding a 25% premium to underlying values, we still see significant downside to the share price given the lackluster outlook for oil tankers. We initiate coverage with a SELL rating and target price of USD 3.2 (-51%).