We have been long product tankers for some time. Russia is the major supplier of diesel to the EU. The rates are moving higher. Brokers see significant upside. Clarksons:
The outlook for product tankers has not been better than since the spring of 2020. However, contrary to the temporary floating storage boom seen two years ago, this time around a change in the trade pattern is the driving force, with longer voyages resulting from Europe’s desire to replace Russian oil products
Do also look at our past posts on LNG tankers. The same theme. EU will be reducing dependence on Russian gas. That is very bullish for LNG tankers. The rates are up significantly. The equities are not, yet. Our top pick COOL.
Linkfire, one of the most interesting companies from Denmark (listed in Sweden) is reporting tomorrow. Stay tuned. We expect the best quarter in the company history. After the deal with Amazon Music announced last month, 2022 should be excellent year for Linkfire.
Clarkson Platau Summary on Hafnia:
Raising target to NOK 50/share
|Hafnia (Oslo: HAFNI) reported black figures in 1Q22 that were in line with expectations, as well as their recent trading update. Based on Hafnia’s 2Q22 bookings to date, and conservative freight rates for the remainder of the quarter, we believe the dividend for 1Q22 of NOK 0.20/share could increase to NOK 1.75/share for 2Q22. EPS for the second quarter could exceed NOK 3.50 per share (annualized P/E of 2x), while operating cash flow could top NOK 4.50 per share. Despite the stock’s year-to-date gains of 64%, we see significant further upside potential as the product tanker market could potentially surge further as refinery production improves during the summer months. We raise our target to NOK 50, representing NAV at newbuild parity and including operating cash flows in 2Q22. BUY rating reiterated. |
In the first quarter, EBITDA was $88 million, based on average achieved TCE rates of around $15,800/day. Net income after adjustments was $24 million, or $0.05 per share.
With 70% of 2Q22 booked at approximately $27,200/day, and assuming current rates of around $35,000/day, we look for EBITDA to surge beyond $250 million for 2Q22 and EPS of $0.37 (NOK 3.50). With a 50% payout ratio, the dividend for 2Q22 could be $0.18 (NOK 1.75).
The outlook for product tankers has not been better than since the spring of 2020. However, contrary to the temporary floating storage boom seen two years ago, this time around a change in the trade pattern is the driving force, with longer voyages resulting from Europe’s desire to replace Russian oil products. Global refining margins have reached very strong levels which is good news for the supply of product cargoes in coming months. According to the International Energy Agency, global oil demand is expected to rise by 3.6 million barrels per day from an April low through August as Chinese restrictions ease, summer driving picks up, and jet fuel continues to recover. This is expected to increase global refining activity significantly. Between now and August, runs are expected to increase by 4.7 mb/d. According to our estimates, historically, 28-29% of global refining volumes have been seaborne, so we could see a 1.3 mb/d increase in shipments, representing a 6% increase for product tankers. In short, we argue that product tankers have been backed by miles in the ton-miles equation, but tons will now expand as well. This suggests that 3Q22 may be stronger than 2Q22.
Freight rates are undeniably high right now, which will have a huge positive impact on earnings, with Hafnia expected to generate more than $200 million in operating cash flow in the second quarter alone. The main question that investors have is whether freight rates are sustainable. We believe that the Russia/Ukraine war has permanently altered the global trade map, resulting in longer hauls. Assuming that refinery output increases during the summer months, as noted above, the market could potentially surge even further. It’s no surprise that major oil traders are looking for multiyear contracts to charter product tankers. This trend will almost certainly result in higher ship values and, as a result, higher NAVs in the future. We calculate the current NAV to be NOK 31.80 per share. All else being equal, if ship values reach newbuild parity by 2023, the NAV would rise to NOK 45/share. If we include the estimated operating cash flow in 2Q22, we believe the NAV could reach NOK 50 per share, our new target price.
Pareto Securities Summary:
|Huge estimate-lag – TP to NOK 45 (35)|
|Hafnia delivered Q1 as guided– and Q2 bookings confirmed the momentum we have seen recently. We raise our estimates also for Q3 and expect USD 0.9 of full year 2022 EPS – resulting in ROE of 30% and a dividend yield of 15%. The current product tanker strength across all regions and segments is still not reflected in equities – with asset values moving upwards. Huge estimate revisions are coming, we raise our TP to NOK 45 (35) and reiterate BUY |
Q1 confirmed – Q2 coming up, soon turning to Q3…
Hafnia delivered Q1 in line with guidance provided in the surprising equity raise earlier this month. A dividend of ~NOK 0.2 declared, roughly equal to 10% of the equity raised. Q2 guidance confirming the bullish market conditions, with ~70% covered at ~27,200, vs. our earlier est. of ~24,950/day – and rates on average far above this now. We update our estimates now see Q2 EBITDA and EPS of USD 234m and USD 0.34 respectively – putting that equity raise further into perspective. The company has sold two more LR1s, and along with the removal of the 8x stainless steel vessels sold earlier our 2023/24 estimates are lowered. However – we also adjust Q3 to reflect how bookings are starting at a much higher level than assumed – effectively keeping Q3 and Q4 at the same level. Our updated 2022 estimates are up 34% vs. before – and we are 53% above cons.
…as the market starts to grasp that this is about more than war
Global inventories of refined products are at decade-low’s, crack spreads are surging, and refinery dislocations are happening. While Chinese diesel exports surely have had a positive impact, we are yet to see the effect of Russian products forced to go longer haul, which we argue can boost ton-mile demand by up to 14%. With all regions and vessel classes experiencing tightness there is not a single reason to pin-point – but with newbuild prices soon back to 2008-levels as the orderbooks are at record low’s at a point in time where we need fleet replacement the outlook for 2023 and 2024 is solid.
Cashflow will push NAVs a lot higher – TP up to NOK 45 (35)
2022 was supposed to be ‘just the prequel’, but once again things did not end up exactly as planned. We estimate cash earnings of near USD 650m for HAFNI this year, resulting in dividends of ~NOK 4 (15% yield). Current NAV of NOK 34 will hit 45 by year-end, and at ~P/E 3x ahead of what was supposed to be the upcycle we reiterate BUY. With higher estimates and NAV we raise our TP to NOK 45 (35), equal to our YE’22 NAV with an assumed fleet value increase of 10%.
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