VOPKF - Vopak: Strong Q1 Results In Substantial Full-Year EBITDA Guidance Boost

2023-06-29 10:32:00 ET

Summary

• Vopak specializes in providing storage services for oil, gas, edible oils and chemical products.
• The Q1 performance beat expectations, and the company has now hiked its full-year EBITDA guidance to 950M EUR.
• That should be sufficient to cover both sustaining capex and growth capex.
• While I'm waiting for the detailed financial statements, which will be published in the H1 report, Vopak is well underway to beat its 2022 sustaining free cash flow.

Introduction

I like infrastructure companies and an owner and operator of terminalling services (storage tanks) usually is pretty high on my list as the sustaining capex required to keep the facilities in good shape tends to be relatively low. Back in 2022, I made a call on Vopak ( OTCPK:VOPKF ) ( OTCPK:VOPKY ) when the share price of the company had dropped to a level I thought was way too low. The market has agreed with me, and the share price of Vopak has increased by 57% since. And as the share price has remained relatively stable in the past few months, I wanted to have a closer look at the Dutch company’s performance again.

The ticker symbol in Amsterdam is VPK , and with an average daily volume of in excess of 200,000 shares for a monetary value of in excess of 6M EUR per day.

VPK started the year strong but we’ll have to wait for detailed financial statements

In this article I’ll mainly focus on the recent developments at Vopak, and for a better understanding of Vopak’s business model, history and strategy, I’d like to refer you to one of my older articles.

I already was pretty satisfied with Vopak’s performance in 2022 as the net free cash flow was very robust and I was looking forward to see what the company would be able to achieve in 2023. And much to my surprise, despite the turmoil on the financial markets and the increasing impact of higher and increasing interest rates on the world economy, Vopak performed much better than I had anticipated. On top of that, the company felt confident enough to already hike the full-year guidance.

Unfortunately Vopak only releases detailed financial statements every six months so we will have to wait for the H1 results to get more details, but the summarized results already clearly indicate Vopak’s performance is most definitely heading in the right direction.

In the first quarter of the current financial year, the EBITDA increased by almost 17% to 249M EUR on the back of higher demand for storage in pretty much every region Vopak is active in. Additionally the company refers to a positive impact from FX changes but as you can see below , FX only added about 4M EUR to the Q1 EBITDA . Nothing to sneeze at, but the strong EBITDA performance was definitely caused by improved volumes and pricing of the main activities.

The strong EBITDA helped Vopak to boost its bottom line result and the net income attributable to its shareholders jumped to 103M EUR (up from 87M EUR in Q4 2022 and 75M EUR in Q1 2022) and this represents an EPS of 0.82 EUR.

My original investment thesis was based on Vopak’s ability to generate robust and reliable cash flows, and that was the main reason to pound the table in August 2022 when the stock was trading in the low-20 EUR range. And although we still have to wait for the detailed cash flow result which will be published in the H1 report, the summary of the cash flow performance remains impressive.

As you can see below, the net cash flow from operations increase to 220M EUR and as the company only needed 50M EUR in capex and 28M EUR to cover the interest expenses (and lease payments), the net available cash flow was 142M EUR in the first quarter of the year. That sounds great but it also sounds a little bit too good to be true and I expect the Q1 cash flow may have been boosted by changes in the working capital position.

In any case, the strong operating cash flow was sufficient to cover all capex commitments (including 54M EUR spent on growth investments) and the "excess" free cash flow helped to reduce the net debt. As of the end of Q1, the net debt to EBITDA ratio had dropped to 2.49 which is slightly below Vopak’s target of 2.5-3 times EBITDA.

The strong performance has allowed Vopak to already hike its full-year guidance. Whereas the company was aiming for an EBITDA result of 910-950M EUR in its original guidance, Vopak now expects the EBITDA to exceed 950M EUR as the demand for storage remains at elevated levels.

The growth capex guidance remained unchanged at around 300M EUR. This means the company remains on track to meet its growth investment target of 2B EUR by 2030 as Vopak plans to invest 1B EUR in industrial and gas terminals and 1B EUR in new energy related projects by the end of this decade.

Vopak also remained pretty active on the M&A front. Subsequent to the end of the first quarter, the company sold a terminal in Savannah for net enterprise value of $106M and this will result in an exceptional gain that will be reported in the second quarter of the year. The sale made sense as the Savannah terminal was mainly used for the storage of asphalt, specialty chemicals and vegetable oils. The company recently clearly indicated it wants to invest in oil and industrial assets and recently announced it's taking a 50% stake in the EemsEnergy Terminal where Exmar’s ( OTCPK:EXMRF ) floating regasification unit is converting LNG into natural gas.

And Vopak isn’t just investing in Europe. In April, it signed a definitive agreement for a new 50/50 joint venture with Canadian company Altagas ( OTCPK:ATGFF ) ( ALA:CA ) to further evaluate the development of the Ridley Island Energy Export Facility which could become a major export facility for LPG and methanol. This facility would be built just south of Prince Rupert in British Columbia to service the Asian markets.

Investment thesis

While I remain very interested in seeing the detailed financial results in the H1 report, the EBITDA result clearly shows Vopak already is heading in the right direction. Both the sustaining capex as well as the growth capex should be fully funded by the incoming cash flows this year and Vopak should have no issues meeting its targets to invest 2B EUR in growth initiatives by 2030.

The company’s share price has remained pretty stable in the past few months and that appears to be a sign of strength as the company is firing on all cylinders. I currently have no position in Vopak but I may try to write some out of the money put options in an attempt to re-establish a position hopefully at a lower price.

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