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Jordan Alliger Makes Waves With Deutsche Tanker Initiation
Jordan Alliger, now of Deutsche Bank, this week initiated coverage on Teekay, OMI and General Maritime, and from what we hear he has gotten a somewhat controversial reaction. Predictions that tanker rates would trend down through 2006 and 2007 due to an increase in supply – which he attributes to a heavy newbuild orderbook, diminished required scrap activity and a more modernized fleet – are hardly a cause for stir. Nor is the assertion that Teekay is a “leader throughout the cycle” and therefore worth holding onto at current rates even if a downturn is imminent.
What probably surprised people more was the somewhat apologetic but very strong sell ratings given to OMI and General Maritime. Lauding the talent of the management and commercial reputations of the both companies, Mr. Alliger nevertheless asserted that both would see shares come down to around 1x 2006 price to book value, which he estimates to be $13 per share for OMI and $30 per share for General Maritime, both of which represent a discount of one third from current prices. At relatively modest premiums of 8% and 14% to NAV respectively, it is not hard to see why the two companies may have been shocked at Deutsche Bank’s drastically lower price targets. The major difference here, of course, is school of thought: are shipping companies worth their asset value, their book value, cash flow – which notably Deutsche Bank used to arrive at their $45 price target for Teekay – or do they have some franchise value? That is a debate that is not new, and one which we will leave for another time.
Betting on Tankers
Last week it was dry bulk. This week, all the fuss seems to be revolving around the tanker market. A Wall Street Journal “Money & Investing” section cover story on the popularity of shorting tanker stocks drew some attention. As did a bearish report from R.S. Platou, a much-talked-about, products-focused IPO from Aries Maritime, positive reports form Jefferies and Banc of America and tanker stock coverage initiations from First Albany. So what, exactly, are the arguments going around, and of what should tanker market players and their financiers be aware? It’s still impossible to predict the future, but we can tell you what some of the competing arguments are.
R.S. Platou analyst Erik Andersen drew a lot of attention with his bearish report on shipping, particularly tankers. According to Mr. Andersen, the seasonality justification for low spot rates – which brokers say have dropped into the upper teens for VLCCs on some routes – is badly overblown. He notes that from 1997-2004, the average second quarter rate was about 37.5% lower than the average fourth quarter rate, completely out of order with the drop in rates from $147,000 in the fourth quarter of 2004 to $41,000 so far in the second quarter of 2005. However, this is still above the 8-year average second quarter rate of $35,000 – albeit with higher bunker prices – suggesting that perhaps the $147,000 was more of an anomaly than the $41,000 is a sign of a crash. Still, tanker fleet annualized growth figures of 6-7% compared to a comparable rate of 1% annually over the decade from 1993-2003 are somewhat ominous. Citigroup Smith Barney analyst Charles de Trenck noted how the current weak rates are making the tanker market the first among the shipping sectors to experience the pricing pressures derived from growing capacity. But on the bright side, Mr. Andersen did write that he does not believe tanker markets will weaken so much as to create a weak year for owners.
Analysts Magnus Fyhr and Douglas Mavrinac at Jefferies & Company have a much different take on the current market situation. They said in a report issued to reiterate their buy rating on Ship Finance International that they expect tanker demand to be firm on increasing OPEC production. Importantly, the analysts believe that incremental fleet growth of 21 MMdwt scheduled through the end of the year is likely to be absorbed by increased tanker demand.
Evincing similarly positive sentiments, analysts Daniel Barcelo, Philippe Lanier and Pierre Sargeant of Banc of America Securities issued a report on oil tankers optimistically titled “Hold On for the Summer Heat.” They note that a 5% tanker stock pullback over the past two weeks has been related more to Arabian Gulf VLCC market conditions than to the tanker industry as a whole, much of which has remained fairly strong. Additionally, they point out that the 450 vessel global VLCC fleet has grown by only two vessels so far in 2005, implying that softened rates could not be explained by supply buildup, but rather are a product of a reduction in Arabian Gulf export volume and a temporary buildup of available tonnage in the gulf. Analyst Craig Irwin of First Albany appears to agree, having this week initiated coverage on General Maritime, OMI and Arlington Tankers with a Buy rating. And a group of Asian investors that market sources say recently put their money into a very expensive $140 million VLCC newbuilding have put their money where their mouth is when it comes to predicting a strong VLCC market for years to come.
Much of Wall Street, however, seems to have sided with R.S. Platou on the more bearish side of the debate, as a widely disseminated article titled “Shorts Expect Tankers to Take On More Water” strongly suggests. Teekay, OMI, Knightsbridge and General Maritime are all being subjected to this phenomenon, with Frontline leading the pack. Investors are brazenly betting that tanker stocks will keep falling. Whether or not this will happen is hard to tell, though the practice certainly is not encouraging for those hoping to see their tanker investments appreciate.
Fyhr & Mavrinac Initiate Diana, Bullish on Arlington
Jefferies analysts Magnus Fyhr and Douglas Mavrinac continued to expand their comprehensive shipping sector coverage with the initiation of coverage on Diana Shipping with a Buy rating and a $21 price target. The analysts note that Diana operates a modern dry bulk fleet while dry bulk fundamentals remain attractive. The company has a strong balance sheet that is readily available to support future growth, and it has announced a policy to pay out all free cash as dividends, a policy which is supported by Diana’s timecharter strategy.
The analysts also reiterated this week their Buy rating for Arlington Tankers, with a target price of $25.00, though the report also reduces EPS estimates based on lowered charter rate expectations. One thing that both these Buy ratings have in common is a notable dividend yield. Calculating the value of near-term returns, dividend yields mean a lot to analysts, but how much do they mean to equity investors?
General Maritime’s recent inauguration of a considerable dividend policy gives us a rare venue to test the hypothesis that higher dividends translate into higher share prices. The accompanying graph comparing General Maritime’s share price evolution, starting in the beginning of January and going through the period when the company announced its new dividend policy, to that of Frontline.
Written by: carisk | Categories: Freshly Minted, Market Commentary | April 28th, 2005 | Add a Comment
Early Earnings Solid, Led by the Newly Public
The first round of 2005 earnings has come in, and the results are solid overall. While tanker companies General Maritime and Teekay did not see revenues quite as strong as 1Q04, the results were certainly nothing at which to balk. OMI, International Shipholding and Kirby all posted increases across the board, with OMI’s results particularly strong, and consistent in the revenue, net income and EBITDA categories, as shown in the accompanying table. The real over-performers so far, not surprisingly, were the companies who have gone public and expanded their fleets substantially in the past year. DryShips saw revenue, net income and EBITDA all increase by more than 70% based on 1Q04, while Top Tankers saw returns more than quintuple in each of these three categories.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 28th, 2005 | Add a Comment
Euronav Closes $1.6 Billion Facility
The activity at tanker company Euronav in recent months has been absolutely blistering. In December the Euronav was spun off into its own public company, and then during the first quarter it acquired four VLCCs from Metrostar for $477 million and a fleet of 16 tankers from Peter Livanos for about $1 billion, comprised of cash and 20% of Euronav’s equity. The credit facilities have an 8-year maturity, and the company will pay a commitment fee of 0.25% on the undrawn portion of the facility. The company has stated that it plans to operate most of its fleet in the spot market.
With the exception of the shares issued to Peter Livanos, Euronav has done all of this buying with non-dilutive debt. Today the company announced that it has signed a $1.6 billion senior secured credit facility that was upsized from the original $1.2 billion. The deal is secured and priced at LIBOR + 80.
Lead bookrunner and facility agent on the deal was Nordea who, along with DnB NOR, acted as lead arrangers. A whopping 24 banks came into the deal; Calyon, Citibank, Deutsche Schiffsbank, HSH Nordbank, HypoVereinsbank, Royal Bank of Scotland and Scotiabank acted as co-arrangers. According to a release from the company, despite the upsizing the deal was oversubscribed by more than 58%.
There are loads of interesting things about this deal, which refinances all of the company previous indebtedness (about $500 million) and provides capital for growth and ships to be delivered. First off, with 24 banks in the club, it is one of the most broadly syndicated loans that we are aware of – the most recent General Maritime $825 million deal had a paltry 17 banks. Although we can’t confirm this, we’re also pretty sure that this is the largest secured loan for a shipping company ever. There have been larger deals, of course, for Worldwide/Bergesen and AP Moller, but those are unsecured.
Bank Debt That’s Like Bond Debt
The new Euronav deal looks a bit like the General Maritime $825 million package in that it is comprised of an amortizing term loan and a non-amortizing revolver. Specifically, this transaction consists of a term loan of $865 million and a non-amortizing revolving loan facility of $500 million. There is also a third tranche which is a term loan of up to $235 million, which will be available for the purpose of financing vessels scheduled to be delivered within the next two years (5x suezmax and 1x VLCC).
Euronav Bullish on Tankers
The new loan will be secured by all of the wholly-owned vessels in the company’s fleet, comprising of two ULCCs, 12 VLCCs, nine Suezmax acquired in conjunction with the Tanklog fleet acquisition, one VLCC newbuilding due to be delivered in May 2005 and five suezmax newbuildings, three of which are due to be delivered in 2006 and two in 2007.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 14th, 2005 | Add a Comment
General Maritime’s Dividends Approved by Nordea
Nordea has amended its L+100 $825 million credit facility with General Maritime to allow for dividends for the first time in the General Maritime’s history as a public company. General Maritime’s management team has done a masterful job using free cash, embedded equity and additional borrowing to grow and improve its franchise. Like a plane that burns a lot of fuel to reach cruising altitude, General Maritime’s dividends are a sign that the company may not see accretive acquisitions on the radar. Some also think it’s a method of increasing the company’s share price to make it a less attractive target to Frontline.
Dividends, like everything else these days, will be based on EBITDA after interest expense and necessary reserves for fleet renewal.
Written by: carisk | Categories: Freshly Minted, The Week in Review | March 31st, 2005 | Add a Comment
Banc of America Securities Initiates Coverage on Tanker Sector
Banc of America Securities initiated widespread coverage on the tanker sector yesterday. Companies covered include General Maritime, Teekay, Frontline and OSG – all with a Neutral rating – and Ship Finance International and OMI Corp., with a Buy rating.
Written by: carisk | Categories: Freshly Minted, Market Commentary | March 24th, 2005 | Add a Comment
Shipowners Present at Deutsche Small Cap Equity Conference
Shipowners Present at Deutsche Small Cap Equity Conference
It’s no coincidence that investor conferences are being held in closer to the equator during these chilly months. This week, Deutsche Bank, which recently hired investment banker Craig Fuehrer from JP Morgan and veteran transportation analyst Jordan Alliger from Lazard (formerly with Goldman Sachs), held an event at the Ritz Carlton on the beach in Naples, Florida. Shipping companies that presented include: Kirby Corporation (NYSE: KEX), OMI (NYSE: OMM), General Maritime (NYSE: GMR), TEN (NYSE: TNP), Stolt Nielsen, S.A. (NASDAQ: SNSA) and Maritrans (NYSE: TUG). As you can see from the share price graphs for the last five days, with fundamentals as good as the shipping industry, it’s always a good idea for companies to get out on the road and tell their story to investors.
It’s no coincidence that investor conferences are being held in closer to the equator during these chilly months. This week, Deutsche Bank, which recently hired investment banker Craig Fuehrer from JP Morgan and veteran transportation analyst Jordan Alliger from Lazard (formerly with Goldman Sachs), held an event at the Ritz Carlton on the beach in Naples, Florida. Shipping companies that presented include: Kirby Corporation (NYSE: KEX), OMI (NYSE: OMM), General Maritime (NYSE: GMR), TEN (NYSE: TNP), Stolt Nielsen, S.A. (NASDAQ: SNSA) and Maritrans (NYSE: TUG). As you can see from the share price graphs for the last five days, with fundamentals as good as the shipping industry, it’s always a good idea for companies to get out on the road and tell their story to investors.
Morgan Stanley Downgrades Energy Shipping, Remains Optimistic About Future
Morgan Stanley Downgrades Energy Shipping,
Remains Optimistic About Future
Morgan Stanley analysts Mark MacLean and Ole Slorer have been keeping a close watch on the US-listed tanker market lately. They caught a lot of people’s attention when they lowered their energy shipping Industry View from Attractive to In-line and lowered their recommendation on General Maritime from Overweight-V to Equal Weight. While Tradewinds notes that the analysts are concerned about factors like the decline in valuation for single-hull tankers, we understand that Mr. Slorer and Mr. MacLean believe that tanker stocks have only taken a run up in line with improving fundamentals in their market. The two recommend in their report that investors “lock in” the profits they can get off the latest run, as strong fourth quarter results are released, and look for a “better entry point in April-May.” Additionally, General Maritime, whose stock price was at $49.60 when the report was published, had reached within range of the $53.00 price target the Morgan Stanley analysts set when the company first announced its new dividend policy, so a re-rating to Equal Wight seems fairly natural.Morgan Stanley Downgrades Energy Shipping,
Remains Optimistic About Future
Morgan Stanley analysts Mark MacLean and Ole Slorer have been keeping a close watch on the US-listed tanker market lately. They caught a lot of people’s attention when they lowered their energy shipping Industry View from Attractive to In-line and lowered their recommendation on General Maritime from Overweight-V to Equal Weight. While Tradewinds notes that the analysts are concerned about factors like the decline in valuation for single-hull tankers, we understand that Mr. Slorer and Mr. MacLean believe that tanker stocks have only taken a run up in line with improving fundamentals in their market. The two recommend in their report that investors “lock in” the profits they can get off the latest run, as strong fourth quarter results are released, and look for a “better entry point in April-May.” Additionally, General Maritime, whose stock price was at $49.60 when the report was published, had reached within range of the $53.00 price target the Morgan Stanley analysts set when the company first announced its new dividend policy, so a re-rating to Equal Wight seems fairly natural.
Morgan Stanley analysts Mark MacLean and Ole Slorer have been keeping a close watch on the US-listed tanker market lately. They caught a lot of people’s attention when they lowered their energy shipping Industry View from Attractive to In-line and lowered their recommendation on General Maritime from Overweight-V to Equal Weight. While Tradewinds notes that the analysts are concerned about factors like the decline in valuation for single-hull tankers, we understand that Mr. Slorer and Mr. MacLean believe that tanker stocks have only taken a run up in line with improving fundamentals in their market. The two recommend in their report that investors “lock in” the profits they can get off the latest run, as strong fourth quarter results are released, and look for a “better entry point in April-May.” Additionally, General Maritime, whose stock price was at $49.60 when the report was published, had reached within range of the $53.00 price target the Morgan Stanley analysts set when the company first announced its new dividend policy, so a re-rating to Equal Wight seems fairly natural.
Written by: carisk | Categories: Freshly Minted, Market Commentary | February 17th, 2005 | Add a Comment
Tropical JP Morgan High Yield Conference Attracts Snowbirds
Tropical JP Morgan High Yield Conference Attracts Snowbirds
JP Morgan hosted a phenomenally well-attended high yield conference at the Lowe’s Hotel on sultry South Beach in Miami Florida last week. Among the 300 hundred companies that presented at the enormous event were faithful JP Morgan shipping clients NCL, Stena and General Maritime – the former two of which issued bonds in 2004. Although most shipowners have been selling equity due to where we are in the cycle, the high yield market remains incredibly receptive to new issuers and should not be overlooked.
JP Morgan hosted a phenomenally well-attended high yield conference at the Lowe’s Hotel on sultry South Beach in Miami Florida last week. Among the 300 hundred companies that presented at the enormous event were faithful JP Morgan shipping clients NCL, Stena and General Maritime – the former two of which issued bonds in 2004. Although most shipowners have been selling equity due to where we are in the cycle, the high yield market remains incredibly receptive to new issuers and should not be overlooked.
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