2023-03-27 10:11:10 ET
Summary
- Tsakos Energy reported $860M revenues.
- The current oil tanker market dynamics will benefit Tsakos Energy.
- Recent decline in oil prices should not be a problem for tanker companies.
A few days ago, Tsakos Energy Navigation (TNP) released its annual report and its guidance for 2023. Results were a bit below expectations with the stock losing 17% on March 16th. However, I still believe that the Company is solid and could be an interesting buying opportunity.
In this article, I will provide a review of the 2022 annual results and I will explain why Tsakos is a BUY.
If you have never heard of Tsakos Energy Navigation, you can read here my previous article with a more detailed description. I also recently covered Reconnaissance Energy (interesting play in Namibia/Botswana), Teekay Tankers and Riley Exploration .
Stock performance
Tsakos is currently trading at $19.3/share, equivalent to a market cap of $552M. The stock is up 114% year-on-year and it is still up 14% year-to-date despite the -17% recorded on March 16th. If compared to the date of my previous article about Tsakos, the stock has gained 26.6% while the S&P500 only 2.1%.
The 52-week minimum is $8.29/share, recorded almost one year ago (March 24th, 2022), while the 52-week maximum is $24.5/share and it was recorded at the beginning of March.
FY2022 results
Total 2022 voyage revenues, at $860M, were almost twice the year before (up 89% from $456M). Considering that there was not a significant change in the number of vessels from 2021 to 2022, the large increase in revenues is mostly explained by higher time charter equivalent per vessel, $30.4k in 2022 vs $17.0k in 2021 (+78%).
Moving to the cost side, it is immediately possible to notice that, despite revenues almost doubling, costs were quite in line with the previous year.
The largest cost item is represented by voyage expenses ($210M, or 35% of total operating expenses) that increased 6% year-on-year, due to some vessels operating in the spot market. The second largest cost item is "vessel operating expenses" which accounted for 32% of total OpEx and increased 10% year-on-year to $190M. The main reason for this increase can be found in inflation and increasing costs for lubricants, crews and insurance.
D&A and G&A were both stable year-on-year at $141M (-2%) and $30M (+2%), respectively.
Looking at the condensed cash flow statement, Tsakos Energy had a negative cash flow from investing activities (-$301M) that was funded with cash flow from operations ($288M) and cash flows from financing activities ($195M). As of December 31st, Tsakos has a total financial debt of $1.6bn, equal to a net debt of $1.3bn if we account for $300M available cash. The YE2022 debt slightly increased vs the Q3-22 due to the funding of the VLCC Dias acquisition in November 2022. The net-debt to current market cap ratio is around 2.3x, a bit better than 2.8x as of September 2022. In one of the previous calls with analysts, Tsakos' management announced their plan to target a $1bn debt 2024.
Tsakos also announced an annual dividend of $0.6/share that will be paid in June 2023 ($0.3/share) and in December 2023 ($0.3/share).
Recent events
In the first couple of months of 2022, Tsakos Energy has been quite active in the market with a series of transactions:
- Six 2005 MR and two 2007 Handysize tankers were sold generating $117M of extra free cash flow - that will be used to reduce debt - and an $80M capital gain;
- Two 2005 Suezmax vessels that were currently under a sale-and-leaseback agreement were repurchased for a price below their current fair value;
- An order for two Suezmax tankers was placed at some shipyards in South Korea.
Tsakos can still benefit from the current market dynamics
Despite oil prices have currently dropped to lower levels, I believe that the multiple forces acting in the oil tanker business are still strong to support companies such as Tsakos in generating strong cash flows. According to the last IEA Oil Market Report of February 2023, global oil demand is expected to increase by 2 Mbbl/d in 2023 (50% of the increase due to China) reaching a total demand of 102 Mbbl/d. In addition to the increasing oil demand, the limitations on Russian oil (and derivative products) are favorable to the tanker business as well. Indeed, the current EU ban on Russian oil has opened new global trade routes with subsequent average longer voyages.
Finally, the market for new tankers remains extremely tight. According to Clarkson Research, the current order book for tankers see a total of 271 vessels that will hit the seas in the next three years (48.8% in 2023, 27.2% in 2024 and 24% in 2025). In addition, there are 1,600 tankers that are more than 15 years old and, sooner or later, some of these will have to be abandoned adding even more stress to an already tight market.
Main risks
One key risk I see is represented by China. As was already mentioned, China alone will account for almost 1 Mbbl/d of oil demand growth but - should China decide to implement again a strong anti-COVID policy - this component of oil demand could disappear, reducing the demand for oil tankers.
Finally, it is worth mentioning that, despite Tsakos' fleet having an overall average age of 7.5 years, some vessels are older with 25 vessels built before 2010. The company has already started a renovation process selling some older tankers and placing orders for newer ones, still, this is something that will absorb free cash flow.
Conclusion
Considering the current dynamics shaping the oil tanker market and the limited impact of potential risks, Tsakos Energy will still be able to navigate with strong free cash flows in the next quarters. At the current price of $19.3/share, Tsakos Energy Navigation is a BUY.
For further details see:
Tsakos Energy Navigation: Still Not Time To Jump Ship