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
Having released phenomenal 1Q05 earnings, announced a massive $225 million stock buyback, held a swinging bank meeting in Vegas and closed a dirt cheap credit facility, Teekay is now ready to hit the road to sell a 20% interest in Teekay LNG Partners LP next week. With this confluence of events, there is little doubt that TK will be a strong performing investment. In an amended filing submitted yesterday, TK filled in a critical blank – the price range – which is $20-$22. Looking at projected EBITDA of about $100 million in 2005, the new deal will be priced at about 12x cash flow assuming middle-range pricing. There are about six shipping deals set to IPO in the coming weeks and having a blue chip deal like this kick off, even though it is an MLP and the others aren’t, will set a good tone. Here’s the line-up for the Teekay LNG deal: Citigroup; UBS Investment Bank; A.G. Edwards; Raymond James; Jefferies & Company, Inc.; Wachovia Securities and Deutsche Bank Securities.
Written by:
carisk | Categories:
Equity,
Freshly Minted | April 24th, 2005 |
Add a Comment
For many years, Marine Money conferences have featured presentations asserting the theory that when public markets begin to value shipping companies at a premium to net asset value, the entire ownership structure of the industry will change. The change, it was said, would be inevitable because public companies would have a lower cost of capital and could therefore be more competitive on the single largest daily expense item – money.
After years of theorizing, this fundamental change appears to be underway. Although the larger and more established public companies such as Teekay and OSG have seen this situation for some time, we believe the emergence and aggressiveness of Top Tankers has really been the catalyst for a change of psychology in Greece – the change in psychology is that there are only three options: to be public, to sell to a public company, or to slowly liquidate assets. Although figures vary since foreign companies are able to make confidential filings for IPOs, we understand there are about 15 deals in registration, comments and drafting currently.
One of the most startling examples of the change that is taking place is the ”broker talk” this week that Top Tankers has reached a deal to acquire AM Nomikos. Top has been an aggressive buyer since going public last July, but to date has picked up unwanted vessels such as the older ships owned by Sovkomflot and suezmaxes that Essar had been marketing for some time.
But the acquisition of Nomikos, if it is true, is something else entirely; the idea that a company like Top, which at this time last year was a private company with very few ships, can acquire the entire fleet of a company like Nomikos, a multi-generational blue chip shipping company with a premier fleet and reputation that was never even for sale, has been a real eye opener. We imagine that Top presented Nomikos with an offer the company simply couldn’t refuse, about $50 million over already high asset prices from our rough and dirty calculations.
If, as we mentioned above, sensible private shipping companies have three options, going public, selling to a public company or slowly liquidating, Nomikos chose option number two. In an effort to understand why this deal appears to have been consummated, we thought we’d do some math.
As you can see from the fleet list and valuation, the Nomikos ships are worth about $415 million. Using full employment, current spot rate estimates, the company would generate $174 million in cashflow in the current 12-month period. Using public comparables, if Nomikos had decided to go public, their fleet could have been valued at about 4x cash flow, or almost $700 million. The major difference, of course, is that when a company goes public, the selling shareholders generally extract a healthy valuation and keep control of the company and management of the vessels, which generally employs family members.
However, if the deal ever comes to fruition, judging from the valuation of Nomikos, it offers them a chance to get a full valuation from their fleet without taking the risk of doing a public offering. The IPO is a consuming process that can take as few as four months but much longer if there are accounting issues. Pre-funding expenses can be about $1.5 million, so if the equity market and/or the shipping markets do not cooperate, the entire effort can be made in vain.
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
Morgan Stanley Upgrades Tanker Sector
Just four days after upgrading General Maritime Corporation to Overweight-V on the announcement of its new dividend policy, Morgan Stanley analysts Mark MacLean and Ole Slorer issued a report revamping their formerly bearish view on the tanker market and raising their industry view to Attractive. This, of course, is good news for tanker companies and their shareholders, but we thought we would take a closer look at what is behind their change of heart.
OPEC Passes on Production Cut, Demand
Forecasts Improve
We looked back just as far as Mr. MacLean’s much more cautious forecast for the tanker market in 2005 published in the January issue of Marine Money, and we were reminded yet again of just how volatile the tanker industry really is. In both the earlier report and the more recent one, near-term fundamentals were classified as strong and concerns about OPEC production cuts were iterated. Since December, a 1.0 mbpd OPEC production cut effective as of January 1, 2005 did not have any particularly deleterious effects, while an OPEC meeting held on January 30 confirmed that OPEC did not feel it was necessary to cut production again at this time. Both these factors improved the outlook for the demand side of the equation.
Also in Mr. MacLean’s earlier forecast, an expansion of supply in the realm of 2.0 mdwt was predicted, to be met by an expansion of demand of 1.5 mbpd. In their more recent report, however, the two Morgan Stanley analysts raised their demand forecast to 1.7 mbpd after this week’s OPEC meeting, noting that at 2.0 mbpd the markets would be balanced and an increase to 2.6 mbpd, as seen last year, would see the market “positively booming.” These numbers do leave room for some notable upside potential in freight rates, which helps explain the 15-20% composite upside potential in the General Maritime, OMI, OSG, and Teekay stocks the analysts cover.
Beyond Supply & Demand: Stronger Asset Values,
Hopes for More Dividends
However, it does not appear to be just the numbers that underlie the analysts’ new bullish view. Whereas the earlier analysis focused primarily on the supply-demand balance, the newer one is broader in focus, considering fundamental changes in the tanker companies covered and in the tanker industry. While this sort of qualitative analysis is, to a certain extent, less scientific, it has the advantage that it is less affected by relatively minor differences (i.e. scrapping estimates, oil demand estimates) and so has the potential to be somewhat more consistent in the face of changing forecasts for supply and demand.
In their most recent report, Mr. Slorer and Mr. MacLean note the increased support for net asset values lent by increases in both newbuilding and secondhand prices and by strong balance sheets that are only being further strengthened by record 4Q04 earnings. As cash becomes slightly less dear to companies, they are willing to spend more on investments for the future, pushing up asset prices and even the monetary value of their own companies.
Perhaps more interesting is the temporary positive externality General Maritime seems to have created with the announcement of its new dividend policy. Far from boosting its own stock price at the expense of the other tanker companies, it has actually moved the Morgan Stanley analysts to become more bullish on General Maritime’s competitors, because they expect the change in policy will put pressure on the other U.S.-listed tanker companies to follow suit as the “valuation bifurcation of high yielding stocks” is brought into relief.
Just four days after upgrading General Maritime Corporation to Overweight-V on the announcement of its new dividend policy, Morgan Stanley analysts Mark MacLean and Ole Slorer issued a report revamping their formerly bearish view on the tanker market and raising their industry view to Attractive. This, of course, is good news for tanker companies and their shareholders, but we thought we would take a closer look at what is behind their change of heart.
OPEC Passes on Production Cut, Demand Forecasts Improve
We looked back just as far as Mr. MacLean’s much more cautious forecast for the tanker market in 2005 published in the January issue of Marine Money, and we were reminded yet again of just how volatile the tanker industry really is. In both the earlier report and the more recent one, near-term fundamentals were classified as strong and concerns about OPEC production cuts were iterated. Since December, a 1.0 mbpd OPEC production cut effective as of January 1, 2005 did not have any particularly deleterious effects, while an OPEC meeting held on January 30 confirmed that OPEC did not feel it was necessary to cut production again at this time. Both these factors improved the outlook for the demand side of the equation.
Also in Mr. MacLean’s earlier forecast, an expansion of supply in the realm of 2.0 mdwt was predicted, to be met by an expansion of demand of 1.5 mbpd. In their more recent report, however, the two Morgan Stanley analysts raised their demand forecast to 1.7 mbpd after this week’s OPEC meeting, noting that at 2.0 mbpd the markets would be balanced and an increase to 2.6 mbpd, as seen last year, would see the market “positively booming.” These numbers do leave room for some notable upside potential in freight rates, which helps explain the 15-20% composite upside potential in the General Maritime, OMI, OSG, and Teekay stocks the analysts cover.
Beyond Supply & Demand: Stronger Asset Values, Hopes for More Dividends
However, it does not appear to be just the numbers that underlie the analysts’ new bullish view. Whereas the earlier analysis focused primarily on the supply-demand balance, the newer one is broader in focus, considering fundamental changes in the tanker companies covered and in the tanker industry. While this sort of qualitative analysis is, to a certain extent, less scientific, it has the advantage that it is less affected by relatively minor differences (i.e. scrapping estimates, oil demand estimates) and so has the potential to be somewhat more consistent in the face of changing forecasts for supply and demand.
In their most recent report, Mr. Slorer and Mr. MacLean note the increased support for net asset values lent by increases in both newbuilding and secondhand prices and by strong balance sheets that are only being further strengthened by record 4Q04 earnings. As cash becomes slightly less dear to companies, they are willing to spend more on investments for the future, pushing up asset prices and even the monetary value of their own companies.
Perhaps more interesting is the temporary positive externality General Maritime seems to have created with the announcement of its new dividend policy. Far from boosting its own stock price at the expense of the other tanker companies, it has actually moved the Morgan Stanley analysts to become more bullish on General Maritime’s competitors, because they expect the change in policy will put pressure on the other U.S.-listed tanker companies to follow suit as the “valuation bifurcation of high yielding stocks” is brought into relief.
Written by:
carisk | Categories:
Equity,
Freshly Minted | February 3rd, 2005 |
Add a Comment
Using Public Equity for Consolidation: Camillo Eitzen & Co. ASA
A good example of a company who has been using their shares for consolidation is Norwegian based Camillo Eitzen & Co. ASA, who went public last summer. After Tschudi & Eitzen split up the company, Mr. Axel Eitzen and his team have been extremely busy growing the company through M&A. The fast past of the development puts the company in the league of Frontline, Teekay and others when it comes to consolidation, and it is today one of the few Norwegian shipping companies with this aggressive entrepreneurial spirit. Looking at the table below you can see the impressive list of transactions that have taken place since their listing in Oslo.
A good example of a company who has been using their shares for consolidation is Norwegian based Camillo Eitzen & Co. ASA, who went public last summer. After Tschudi & Eitzen split up the company, Mr. Axel Eitzen and his team have been extremely busy growing the company through M&A. The fast past of the development puts the company in the league of Frontline, Teekay and others when it comes to consolidation, and it is today one of the few Norwegian shipping companies with this aggressive entrepreneurial spirit. Looking at the table below you can see the impressive list of transactions that have taken place since their listing in Oslo.
Written by:
carisk | Categories:
Equity,
Freshly Minted | January 27th, 2005 |
Add a Comment
As we are going to press, I.M Skaugen and Teekay Shipping announced their intention to create a joint venture with Skaugen’s lightering business, Skaugen Petro Trans (SPT). Although the deal is still subject to due dilly, the boards of both companies have agreed to an MOU and hope to close by October 1, 2003. As we understand it, Teekay will buy 50% of SPT for a combination of cash at closing and an earn out based on projected EBITDA. Fair enough, but the million dollar question is – how do you value a lightering business? Unlike Citibank, which finally sold Crowley Maritime’s MTL Petrolink to American Eagle Tankers after more than a year on the market for half the original $23 million asking price, we believe this case is different as it was Teekay that made the initial overature to Skaugen.
Let’s put this deal into perspective. SPT generated EBITDA of $6.1 million in 2Q03, up sharply from the $1.9 million the company did in 1Q03, but the company’s first half 2003 EBITDA of $8 million is down from the $15 million the company generated in the same period in 2002. Although Morits Skaugen declined to comment on the valuation metric used, the company did say in a recent filing that it thought 6-9x EBITDA was a reasonable range. At Skaugen’s current valuation of 7.6x EBITDA, the company is worth $140 million and Teekay’s 50% stake $70 million. Although
the companies have not yet disclosed the terms by which Teekay can acquire the remaining shares in SPT, it is hard to imagine the the buyers would be satisifed with a minority interest indefinately.
Continue Reading
Written by:
carisk | Categories:
Marine Money | October 1st, 2003 |
Add a Comment
By Matt McCleery and Urs Dür
In a move that we’ve been anticipating for several years, Aequitas Holdings, of which Leif O. Høegh is the Chairman and Morten W. Høegh and Westye Høegh are Directors, successfully tendered, the week of 1st May, for the 35% the shares in Oslo-listed Leif Hoegh (Oslo: LHO) that they did not already control.
Although we think it’s an important deal, it is not a huge one in dollar terms – Aequitas will pay $160 million in cash for the 35% of Leif Hoegh they do not already own, valuing the company’s equity at about $503m and allowing them to purchase the company for 3.1 4x EBITDA, a favorable multiple for the buyer especially when you consider how much of the fleet is on long term contracts.
Plus, thanks to the fact that Leif Hoegh had $250m in cash and equivalents at ’02 year end and balance sheet leverage of only 50%, Aequitas was able to finance its entire purchase LBO- style, using the cash in the company and equity on the balance sheet to support a acquisition debt financing arranged by Nordea, DnB and Hamburgische Landesbank Giroz. Even with the new debt in place, balance sheet book leverage will rise from about 50% to a bit more than 65%, still very reasonable based on the company’s industrial business model, and we would be surprised if Aequitas hasn’t advised banks that it will begin selling off its reefer and bulk interests and use the proceeds to pay down some debt, just a Marine Money guess on the latter.
Continue Reading
Written by:
carisk | Categories:
Marine Money | May 1st, 2003 |
Add a Comment
By Urs Dür
The title depicts what was announced between mid-December 2002 and mid February 2003. It is a deceiving title but we had to catch your eye. Firstly it’s deceiving since much of what was announced has been long in development and/or is yet to be finalized. Secondly, and probably most importantly, it’s deceptive because the fundraising and acquisitions are not done yet, nor in our humble estimation, likely by a long shot.
Of course what we are referring to is Teekay’s (NYSE: TK) $800m acquisition of Navion in December and their $1 44m sub-debt convertible equity (PEP) announced and priced on Febrauay11th. We are also referring to General Maritime’s (NYSE: GMR) $525m acquisition of Metrostar’s existing assets at the end of January and Stelmar’s (NYSE: SJH) $177m purchase of Comninos’ controlled Target Marine’s 6 MR new- buildings on 10th February. The amount raised by these transactions in this period is approximately $1 .64billion, give or take a few million on the variables. The combined tonnage of the tanker deals – which have attributes that effect four different sectors of the tanker market including shuttle tankers, suezmax, aframax and product tankers – is about 4.05 million tonnes not including the chartered-in tonnage of Navion and its associated franchise value for TK. But these are anecdotal figures for the sake of measurement of scope, lets have some fun people!
Equally interesting is what has yet to happen. Most notably the quest to sell, on the part of Singapore listed Neptune Orient Lines (NOL), American Eagle Tankers (AET) is ongoing amidst what has become the soap opera backdrop of NOL’s trials and tribulations of massive losses in the non tanker sectors and the upheaval in its management. No less than five companies; Teekay, General Maritime, Overseas Shipholding Group (NYSE: OSG), Tsakos Energy Navigation (NYSE: TNP), Stena and Malaysian national carrier MISC are in the running for this $750m, 3m ton (or, as we say with a smile, $250/ton purchase). Most readers know that the potential sale of AET has been going on for years like a bad serial soap opera, but with the recent regime change within NOL combined with its massive losses and a good tanker market, we think that AET can be done this year and is likely done sooner rather than later.
Continue Reading
Written by:
carisk | Categories:
Uncategorized | March 1st, 2003 |
Add a Comment
Contrary to popular belief 2003 has had a very promising start. Notwithstanding the Venezuela crisis, the Iraq standoff and no hint of capture for the beast Bin Laden, things are good. The US and world economies are showing signs of recovery, the tanker market is strong, containers have had a sustained rebound (a symptom of an improving economic landscape) and even the Northeast US is having a good ski season with cold temperatures raising energy expenditure putting pressure on prices.
Last year this economisteditor, in “Shipping and Global Recession” January 2002 took a look at the world’s macro-economy and took a stab at predicting the economic trends of the upcoming year. Remarkably, and largely due to a lot of assistance from good supporting sources at Citibank and others, much of it was correct. The discussion of the US recession and using expansion of money supply to combat it instead of interest rate cuts alone appears to have been correct. US M3, the broad measure of money supply has expanded 6.6% over the last 12 months, the dollar has weakened against the Euro and hints of inflation have re-appeared (albeit that the US CPI only rose 2.4% in the last 12 months and contracted in December due to holiday discounts). This signifies economic growth and will permit interest rates to go back up to sane levels where they once again become a useable tool for fiscal policy. Why is this a good thing? A better US economy means a better world economy and that is generally very good for shipping.
On the shipping front we have a large amount of transactions running wild in January and bankers, to a person, are in a buoyant mood:
Continue Reading
Written by:
carisk | Categories:
Uncategorized | February 1st, 2003 |
Add a Comment
