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Earnings Season – Bask in the Glory!
As the global economy lurches from shaky economic measure to even shakier economic indicators and the public markets collectively hold their breaths prior to any major earnings release, shipping square in the middle of its own earnings season is proving to be a stellar financial performer. Who would ever have thought that?!
While Diana was punished for missing analyst estimates by 2 cents, the more important fact is that the direction of earnings is still upwards with year on year improvements, dividends are being increased and the forward book of business seems likely to assure that 2008 will be another hugely successful financial year.
Some representative quotes may say it best:
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Written by: carisk | Categories: Freshly Minted, The Week in Review | February 21st, 2009 | Add a Comment
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.
Nordic American Raises $173 million, JP Morgan Bearish
Nordic American Raises $173 million,
JP Morgan Bearish
Nordic American Tanker Shipping priced it’s 3.5 million share follow-on offering today at $49.50 per share, raising $173 million not counting 545,000 shares reserved for over-allotments. Bear, Stearns & Co. and UBS investment Bank are acting as joint bookrunning managers on the deal while DnB NOR Markets is serving as co-manager. The proceeds from the deal are to be used to repay any amounts borrowed under the company’s senior secured credit facility and to go towards the price of two suezmax tankers that NAT had previously agreed to purchase.
Early in the morning of the day the offering priced, JP Morgan issued research reports initiating both Nordic American and fellow tanker yield-play Knightsbridge as Underweight.
Nordic American Tanker Shipping priced its 3.5 million share follow-on offering today at $49.50 per share, raising $173 million not counting 545,000 shares reserved for over-allotments. Bear, Stearns & Co. and UBS Investment Bank are acting as joint bookrunning managers on the deal while DnB NOR Markets is serving as co-manager. The proceeds from the deal are to be used to repay any amounts borrowed under the company’s senior secured credit facility and to go towards the price of two suezmax tankers that NAT had previously agreed to purchase.
Early in the morning of the day the offering priced, JP Morgan issued research reports initiating both Nordic American and fellow tanker yield-play Knightsbridge as Underweight.
2004 Earnings Begin to Roll In – Some Break Records, Others See Mixed Results
2004 Earnings Begin to Roll In – Some Break Records,
Others See Mixed Results
Public tanker companies OMI Corporation and Teekay Shipping both started the year off with a bang by announcing last year’s results, showing growth that was virtually off the charts. Tanker yield play Knightsbridge also brought exceedingly strong numbers, enough to prompt Jefferies analysts Magnus Fyhr and Douglas Mavrinac to commend the company for exceeding expectations, though not enough to lift the company any further than its HOLD rating. CP Ships enjoyed modest growth of both net income and revenue, even as the company recovers from its results restatement in 2003 and deals with the class action lawsuits that followed in its wake. Meanwhile, US-flag petroleum transporter Maritrans saw a rise in revenue paired with a drop in net income, though.
Public tanker companies OMI Corporation and Teekay Shipping both started the year off with a bang by announcing last year’s results, showing growth that was virtually off the charts. Tanker yield play Knightsbridge also brought exceedingly strong numbers, enough to prompt Jefferies analysts Magnus Fyhr and Douglas Mavrinac to commend the company for exceeding expectations, though not enough to lift the company any further than its HOLD rating. CP Ships enjoyed modest growth of both net income and revenue, even as the company recovers from its results restatement in 2003 and deals with the class action lawsuits that followed in its wake. Meanwhile, US-flag petroleum transporter Maritrans saw a rise in revenue paired with a drop in net income, though.
General Maritime Announces Dividend Policy, Picks up Premium
General Maritime Announces Dividend Policy, Picks up Premium
In what we can only assume is an effort to drive up the General Maritime share price in advance of Frontline’s potentially hostile take over, General Maritime has adopted a dividend policy. The play here is that dividend yield paying stocks like Knightsbridge and NAT are being valued on a multiple of dividends, which is significantly higher than the tanker companies that pay small dividends (less than 5 percent) or no dividends at all. The chart on page 2 illustrates this phenomenon
GMR Shares a BUY, with Potential to Reach $53, $62…or Even $76
Based on an NAV of $41.83/share, as estimated by Jefferies, General Maritime would be worth over $76 if it was valued the same way as NAT, and even if it was valued like the more modest yield play Knightsbridge, the share price would still go up over $62. Analysts were quick to match General Maritime’s shift in strategy to a shift in target valuation. Even before the dividend policy announcement, Dahlman Rose & Co. analyst Harvey Stober had initiated coverage on General Maritime with a BUY on January 19, noting that: “With cash accumulating quickly, GMR has the wherewithal to institute a significant dividend or major share repurchase program.” Not long after, General Maritime announced just such a plan. Morgan Stanley quickly moved its target P/NAV for GMR up to 150%, upgrading the company to Overweight V with a target share price of $53. The more bullish Jefferies & Company set a target price at $62, close to what GMR would be at VLCCF’s valuation. What we did not see in the reports, however, was a mention of Frontline.
A Future with FRO? Depends on the Price
Peter Georgiopoulos and Jeff Pribor spoke confidently of making accretive acquisitions and growing the company in their conference call, and for the most part questions from listeners revolved around the details of their plans. Only Natasha Boyden of Cantor Fitzgerald ventured to directly ask about the situation with Frontline and whether this action would have an impact. To this there was a pause, followed by a cautious “I don’t know” before the more confident answer that this strategy change was the result of a long study and careful consideration of company strategy. But then just yesterday Bloomberg TV reported that General Maritime would be interested in a merger with Frontline, saying that Peter Georgiopoulos commented that the rival oil tanker operator would have to pay heavily in cash if he wished to purchase the company.
Whether or not this is in the cards, Mr. Georgiopoulos and Mr. Pribor have already succeeded in having their company reevaluated by leading analysts – Magnus Fyhr and Douglas Mavrinac at Jefferies and Mark MacLean and Ole Slorer at Morgan Stanley – and have watched their stock price shoot up an astonishing 9.81% to $44.65 in just one day. Not only that, but the terms of the dividend policy specify the Board of Director’s intent to establish reserves for maintenance and capital expenditures probably equating to around $100 million in 2005. So while they immediately picked up the premium in share price, the company should have a grace period before it actually has to pay out any cash.
In what we can only assume is an effort to drive up the General Maritime share price in advance of Frontline‘s potentially hostile take over, General Maritime has adopted a dividend policy. The play here is that dividend yield paying stocks like Knightsbridge and NAT are being valued on a multiple of dividends, which is significantly higher than the tanker companies that pay small dividends (less than 5 percent) or no dividends at all. The chart on page 2 illustrates this phenomenon
GMR Shares a BUY, with Potential to Reach $53, $62…or Even $76
Based on an NAV of $41.83/share, as estimated by Jefferies, General Maritime would be worth over $76 if it was valued the same way as NAT, and even if it was valued like the more modest yield play Knightsbridge, the share price would still go up over $62. Analysts were quick to match General Maritime’s shift in strategy to a shift in target valuation. Even before the dividend policy announcement, Dahlman Rose & Co. analyst Harvey Stober had initiated coverage on General Maritime with a BUY on January 19, noting that: “With cash accumulating quickly, GMR has the wherewithal to institute a significant dividend or major share repurchase program.” Not long after, General Maritime announced just such a plan. Morgan Stanley quickly moved its target P/NAV for GMR up to 150%, upgrading the company to Overweight V with a target share price of $53. The more bullish Jefferies & Company set a target price at $62, close to what GMR would be at VLCCF’s valuation. What we did not see in the reports, however, was a mention of Frontline.
A Future with FRO? Depends on the Price
Peter Georgiopoulos and Jeff Pribor spoke confidently of making accretive acquisitions and growing the company in their conference call, and for the most part questions from listeners revolved around the details of their plans. Only Natasha Boyden of Cantor Fitzgerald ventured to directly ask about the situation with Frontline and whether this action would have an impact. To this there was a pause, followed by a cautious “I don’t know” before the more confident answer that this strategy change was the result of a long study and careful consideration of company strategy. But then just yesterday Bloomberg TV reported that General Maritime would be interested in a merger with Frontline, saying that Peter Georgiopoulos commented that the rival oil tanker operator would have to pay heavily in cash if he wished to purchase the company.
Whether or not this is in the cards, Mr. Georgiopoulos and Mr. Pribor have already succeeded in having their company reevaluated by leading analysts – Magnus Fyhr and Douglas Mavrinac at Jefferies and Mark MacLean and Ole Slorer at Morgan Stanley – and have watched their stock price shoot up an astonishing 9.81% to $44.65 in just one day. Not only that, but the terms of the dividend policy specify the Board of Director’s intent to establish reserves for maintenance and capital expenditures probably equating to around $100 million in 2005. So while they immediately picked up the premium in share price, the company should have a grace period before it actually has to pay out any cash.
Nordic American Tankers: Lessons Learned from The Dividend Yield
By Andreas Vergottis
Ever since its inception, Nordic American Tankers and, for that matter, its similarly structured peer Knightsbridge Tankers have traded at a premium valuation that other plain vanilla tanker companies could only dream of. Table 1 shows that the historic average Price to Book ratio of NAT and Knightsbridge has exceeded 120 cents/dollar. By contrast, the average peer group rating has been a paltry 89 cents/dollar.
The valuation discrepancy becomes even more glaring if one takes into account that NAT and Knightsbridge ships are in the books at prices that exceed the prevailing market levels for reasons which will be explained shortly. Table 2 shows a more refined comparison between the ratings of the peer group companies based on Enterprise Value (EV)/ Fleet Value. This valuation yardstick adjusts for deviations between book and market values and also for differences in the gearing of the companies. It allows comparison of peer group valuations on a more apples-to-apples basis.
Based on Table 2, NAT and Knightsbridge have traded at a premium of about 50 cents/dollar over the most comparable peer group. The story remains the same whatever valuation yardstick one decides to use. On both asset and earnings based multiples, NAT and Knightsbridge have commanded enviable ratings.
Marine Money Launches Tanker Index
Recently we got a callfrom a loyal reader of Freshly Minted (FM) noting that while the data regarding the “New York Liquid Bulk Peers Share Performance” chart that has appeared in most editions of FM of late and has evolved over the year to include more and more data, was interesting but “What does it really mean”. Well, that reader knows who they are and in fact most weeks we get a call from this person and we love and encourage further feedback.
The initial response to the question of what the data means was one akin to “Make of it what you will.” We have produced estimates on a range of tanker companies and were hoping to give a basic knowledge of some of the share performance of the companies noted. However this combination comment/question resonated. While each contingent part of the data has relative and varying degrees of importance with each company, and is therefore a valuable piece of information, why have all the data and not at least try to benchmark it? Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
