INSW - Riding The Tanker Tide Of Fortune With Teekay Tankers And Tsakos Energy
2023-12-21 23:40:47 ET
Summary
- The tanker industry has bullish potential due to a low order book, an aging fleet, increased regulations, and anticipated oil and product demand growth.
- Tsakos Energy Navigation and Teekay Tankers emerge as top tankers to ride the rising tide.
- Teekay Tankers' parent provides an added benefit, trading at a 15-18% discount to its subsidiary.
- Tsakos Energy Navigation is set to double if shareholder value is honored.
This analysis builds upon the macro thesis presented in here , emphasizing the bullish potential of the tanker industry. Factors supporting this outlook include a low order book, an aging fleet, increased regulations, and anticipated growth in regional and global oil and product demand over the next three years. To maximize investment potential, I focus on identifying undervalued tanker companies rather than investing in a broad portfolio.
Selected Tanker Companies
The chosen companies for analysis are Ardmore Shipping ( ASC ), Teekay Tankers ( TNK ) ( TK ), Tsakos Energy Navigation Limited ( TNP ), DHT Holdings ( DHT ), Euronav NV ( EURN ), Frontline ( FRO ), International Seaways ( INSW ), TORM ( TRMD ), Scorpio Tankers ( STNG ) and Hafnia Limited ( OTCQX:HAFNF ).
Financial Performance Research
Trailing Twelve-Month Earnings Analysis:
The first analysis involves ranking each company based on their trailing twelve-month earnings in comparison to their market capitalization. Notably, Tsakos Energy Navigation stands out as the most attractively priced, with a P/E ratio of 1.7, significantly lower than the industry average of 4.27. Teekay Tankers follows Tsakos in 2nd with a P/E of 2.96.
| Tanker |
| Market Capitalization |
| Earnings |
| P/E |
| Rank |
| Tsakos Energy Navigation Limited |
| $568,277,862 |
| $342,286,560 |
| 1.70 |
| 1 |
| Teekay Tankers Ltd |
| $1,606,791,963 |
| $465,490,440 |
| 2.96 |
| 2 |
| TORM plc |
| $2,250,000,000 |
| $692,400,000 |
| 3.25 |
| 3 |
| International Seaways, Inc |
| $2,094,283,365 |
| $632,882,460 |
| 3.30 |
| 4 |
| Ardmore Shipping Corporation |
| $551,339,663 |
| $137,928,640 |
| 3.99 |
| 5 |
| Hafnia |
| $3,100,000,000 |
| $880,600,000 |
| 3.86 |
| 6 |
| Scorpio Tankers |
| $2,851,886,215 |
| $653,950,000 |
| 4.54 |
| 7 |
| Euronav NV |
| $3,554,159,987 |
| $686,500,000 |
| 5.18 |
| 8 |
| Frontline plc |
| $4,156,367,692 |
| $783,632,960 |
| 5.29 |
| 9 |
| DHT Holdings, Inc. |
| $1,521,445,244 |
| $187,050,950 |
| 8.20 |
| 10 |
Tonnage - Enterprise Value to Dead Weight Tonnage Analysis:
To gauge future prospects, the analysis considers each company's fleet capacity and future estimated revenues in relation to their enterprise values. DHT Holdings lead in EV/DWT with 257, closely followed by Tsakos Energy Navigation at 268.
| EV/DWT |
| Rank |
| DHT Holdings, Inc. |
| 256.71 |
| 1 |
| Tsakos Energy Navigation Limited |
| 267.50 |
| 2 |
| Euronav NV |
| 302.55 |
| 3 |
| International Seaways, Inc |
| 326.22 |
| 4 |
| Teekay Tankers Ltd |
| 361.03 |
| 5 |
| Scorpio Tankers |
| 415.79 |
| 6 |
| Frontline plc |
| 530.25 |
| 7 |
| Hafnia |
| 625.57 |
| 8 |
| TORM plc |
| 640.54 |
| 9 |
| Ardmore Shipping Corporation |
| 644.72 |
| 10 |
DHT Holdings and Euronav (3rd place) were expected to lead the EV/DWT analysis due to their focus on VLCCs, the largest vessel type, but it was a surprise to see Tsakos come in 2nd with their diversified fleet spanning 6 vessel types with only 3 being VLCC's. The vessels included in the analysis are owned, under 20 years of age, and include new builds through 2026.
| VLCC |
| Aframax |
| Suezmax |
| Panamax |
| Handysize |
| LNG |
| Ardmore Shipping Corporation |
| 0 |
| 0 |
| 0 |
| 0 |
| 24 |
| 0 |
| DHT Holdings, Inc. |
| 24 |
| 0 |
| 0 |
| 0 |
| 0 |
| 0 |
| Euronav NV |
| 43 |
| 0 |
| 26 |
| 0 |
| 0 |
| 0 |
| Frontline plc |
| 22 |
| 18 |
| 25 |
| 0 |
| 0 |
| 0 |
| International Seaways, Inc |
| 13 |
| 40 |
| 13 |
| 0 |
| 0 |
| 0 |
| Scorpio Tankers |
| 0 |
| 39 |
| 0 |
| 0 |
| 73 |
| 0 |
| Teekay Tankers Ltd |
| 0.5 |
| 19 |
| 17 |
| 0 |
| 0 |
| 0 |
| TORM plc |
| 0 |
| 13 |
| 0 |
| 13 |
| 58 |
| 0 |
| Tsakos Energy Navigation Limited |
| 3 |
| 25 |
| 22 |
| 8 |
| 5 |
| 3 |
| Hafnia |
| 0 |
| 10 |
| 0 |
| 31 |
| 76 |
| 0 |
Enterprise Value to Revenue Analysis
To balance carrying capacity and reflect future revenue generation, each tanker's fleet is compared to estimated three-year charter rates by ship type. The 3-year charter rates used were derived from Hellenic , Fearnley , LNG Hub and are displayed below.
| Type |
| 3 Yr Charter $/day |
| Aframax |
| $40,000 |
| Suez |
| $42,500 |
| VLCC |
| $52,500 |
| Panamax |
| $21,000 |
| HandySize |
| $21,000 |
| LNG |
| $100,000 |
Tsakos Energy Navigation emerges as the top performer with an EV/Revenue ratio of 0.87 and Scorpio Tankers follows with 0.97.
| EV/Rev |
| Rank |
| Tsakos Energy Navigation Limited |
| 0.87 |
| 1 |
| Scorpio Tankers |
| 0.97 |
| 2 |
| International Seaways, Inc |
| 1.04 |
| 3 |
| Teekay Tankers Ltd |
| 1.17 |
| 4 |
| Ardmore Shipping Corporation |
| 1.28 |
| 5 |
| DHT Holdings, Inc. |
| 1.52 |
| 6 |
| Euronav NV |
| 1.57 |
| 7 |
| Hafnia |
| 1.58 |
| 8 |
| TORM plc |
| 1.71 |
| 9 |
| Frontline plc |
| 2.27 |
| 10 |
Shareholder Yield Analysis
Recognizing the industry's historical challenges, the analysis includes a shareholder yield metric, factoring in market capitalization, dividends, debt, and share-related activities. Hafnia and Scorpio Tankers lead with 39% and 37% shareholder yields, respectively.
| Shareholder Yield |
| Rank |
| Hafnia |
| 38.89% |
| 1 |
| Scorpio Tankers |
| 37.14% |
| 2 |
| Teekay Tankers Ltd |
| 30.32% |
| 3 |
| International Seaways, Inc |
| 28.45% |
| 4 |
| Ardmore Shipping Corporation |
| 27.81% |
| 5 |
| TORM plc |
| 21.64% |
| 6 |
| Euronav NV |
| 19.65% |
| 7 |
| Frontline plc |
| 17.72% |
| 8 |
| DHT Holdings, Inc. |
| 10.87% |
| 9 |
| Tsakos Energy Navigation Limited |
| 6.27% |
| 10 |
Final Rankings and Insights
Considering all metrics, Teekay Tankers Ltd and Tsakos Energy Navigation Limited emerge as the top contenders, tied for first position.
| Total Rankings |
| Teekay Tankers Ltd |
| 1 |
| Tsakos Energy Navigation Limited |
| 1 |
| International Seaways, Inc |
| 3 |
| Scorpio Tankers |
| 4 |
| Hafnia |
| 5 |
| Euronav NV |
| 6 |
| Ardmore Shipping Corporation |
| 7 |
| DHT Holdings, Inc. |
| 7 |
| TORM plc |
| 9 |
| Frontline plc |
| 10 |
Tsakos Energy Navigation - a 2x?
While Tsakos Energy Navigation showcases robust upside potential, concerns regarding management decisions and shareholder yield merit consideration. In my opinion, the market appears to be punishing Tsakos for having diluted their fellow shareholders in 8 of the last 10 years. If this pathway were to adjust in the near future, Tsakos Energy Navigation's stock price would be set up to double, just to catch up with its peers, not to mention the additional benefits of a potential extended tanker upcycle.
The company direction is up to Nicolas Tsako, the leader of Tsakos Energy Navigation, and his family, who have built and owned 37% of the business. There will not be a takeover, it is up to them, as they have a poison pill attached to their Tsakos Energy Management agreement as well.
They have repurchased shares in the past, but according to Nicolas "It is not on the top of the list" .
TNK and TK
Teekay Tankers has demonstrated a strong performance, tying for the first position in overall tanker rankings alongside Tsakos Energy Navigation. Positioned fifth or higher across all metrics and secured the second spot in trailing twelve-month profitability and third in shareholder yield.
Operational Strengths
Teekay Tankers stands out with a strong balance sheet that allows them the ability to have 53 mid-sized vessels engaged in the firm spot market, positioning them to maximize their potential returns in a bullish market. The strategic decision to charter vessels at a cost lower than the income generated in 2023 contributed to their trailing twelve-month profitability metrics and is an example of management's ability to create value where none was previously seen. In Q1 of 2024 they are expected to have purchased all 8 of their in-chartered vessels through a sale-leaseback arrangement for $137 million, a move of which would enhance the company's EV/Revenue ranking going forward. Their strong balance sheet, featuring an $83 million net cash position, coupled with anticipated cash flows over the coming quarters, positions Teekay Tankers to cover the upcoming vessel purchase costs while maintaining a top-tier shareholder yield.
Strategic Capital Allocation
Stewart Andrade's ((CFO)) affirmation of an unchanged capital allocation plan through 2024 underscores the company's commitment to sustaining its impressive shareholder yield. However, it's worth noting that Teekay Tankers fleet is without a vessel newer than 2013, which will necessitate a future need for fleet modification.
Teekay Tankers Parent: Unlocking Value
Teekay Tankers Parent, controls Teekay Tankers Corporation, owns 9.8 million TNK shares (valued at $458 million at today's share price of $46.70) and holds $284 million in cash with no debt for a total asset value of $742 million. Teekay Tankers Parent's market cap is currently sitting at $611-637 million (outstanding/diluted share count) providing us an option to purchase TNK shares through TK at a discount of 15-18%.
In Conclusion
In conclusion, I believe Teekay Tankers Parent and Tsakos Energy Navigation are two strong companies to ride the tanker Tides of Fortune .
For further details see:
Riding The Tanker Tide Of Fortune With Teekay Tankers And Tsakos Energy