TORM plc: A Luring Dividend Yield And Skewed Risk Reward (Rating Downgrade)

seekingalpha03-27

TORM plc delivered record-high figures FY23: $1,520 million in revenue, $1,084 TCE earnings, and $846 million adj. EBITDA.The company pays dividends with excellent yield: 16.2% FWD yield and 20.9% TTM...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2422479968?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/474078236/image_474078236.jpg","is_english":true,"pubTime":"2024-03-27 17:34","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2422479968","market":"sh","top_or_hot":-1,"title":"TORM plc: A Luring Dividend Yield And Skewed Risk Reward (Rating Downgrade)","media":"seekingalpha","content":"<div>\n<p>TORM plc delivered record-high figures FY23: $1,520 million in revenue, $1,084 TCE earnings, and $846 million adj. EBITDA.The company pays dividends with excellent yield: 16.2% FWD yield and 20.9% TTM...</p>\n\n<a href=\"https://seekingalpha.com/article/4680673-torm-a-luring-dividend-yield-and-skewed-risk-reward-rating-downgrade\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>TORM plc: A Luring Dividend Yield And Skewed Risk Reward (Rating Downgrade)</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTORM plc: A Luring Dividend Yield And Skewed Risk Reward (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-03-27 17:34 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4680673-torm-a-luring-dividend-yield-and-skewed-risk-reward-rating-downgrade><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>TORM plc delivered record-high figures FY23: $1,520 million in revenue, $1,084 TCE earnings, and $846 million adj. EBITDA.The company pays dividends with excellent yield: 16.2% FWD yield and 20.9% TTM...</p>\n\n<a href=\"https://seekingalpha.com/article/4680673-torm-a-luring-dividend-yield-and-skewed-risk-reward-rating-downgrade\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4144","symbol_name":"石油与天然气的储存和运输","start_time":0,"source_url":"https://seekingalpha.com/article/4680673-torm-a-luring-dividend-yield-and-skewed-risk-reward-rating-downgrade","article_id":"2422479968","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/474078236/image_474078236.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2422479968","pubTimestamp":1711532072,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"TORM plc delivered record-high figures FY23: $1,520 million in revenue, $1,084 TCE earnings, and $846 million adj. EBITDA.The company pays dividends with excellent yield: 16.2% FWD yield and 20.9% TTM","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK4144":"石油与天然气的储存和运输","TORM":"TOR矿物国际","ASC":"Ardmore Shipping Corporation","BK4109":"特种化学制品","HAFNF":"HAFNIA LTD","BK4585":"ETF&股票定投概念","STNG":"Scorpio Tankers","BK4588":"碎股","TRMD":"Torm PLC"},"translate_title":"TORM plc：诱人的股息收益率和扭曲的风险回报（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ASC":1,"US7Y.BOND":1,"US6M.BOND":1,"US5Y.BOND":1,"US3Y.BOND":1,"US30Y.BOND":1,"US2Y.BOND":1,"US12M.BOND":1,"US10Y.BOND":1,"TRMD":1,"TORM":1,"STNG":1,"HAFNF":1,"US912797GW17.BOND":0.6,"US912797HE00.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HH31.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6,"US912796CX52.BOND":0.6},"content_text":"TORM plc delivered record-high figures FY23: $1,520 million in revenue, $1,084 TCE earnings, and $846 million adj. EBITDA.The company pays dividends with excellent yield: 16.2% FWD yield and 20.9% TTM yield. For 4Q23, TRMD will distribute a dividend of $1.36/share.Considering the shipping investors' triad (fleet quality, PNAV, and LTV), TRMD is expensive.TORM plc is a great stock pick for income-minded investors; however, the risk-reward at the current price is not skewed in investors’ favor. My verdict is a hold rating.Dikuch Note: I previously covered TORM plc (NASDAQ:TRMD). In my previous take on TRMD, I pointed out the company's strengths: its MR focused fleet, strong balance sheet, dividend policy, and product tankers market catalysts. Today, I will dissect FY23 figures, update the company's valuation and rating. Product tankers market Overview Product tankers are in the second stage of their expansion cycle ahead of crude oil tankers, bulk carriers, and OSVs. The table below from 2023 annual report shows the size of the product tankers' order book. TRMD annual report The total clean tanker order book for 2024-2026 is 9%. Among the various sizes, the LR2 score is the highest, 24%. However, LR2 vessels could carry crude oil, too. So, we have to consider the Aframax order book, which stands at 3%. The combined LR2/Aframax order book is around 13%. The Aframax fleet is aging fast, given that 17% of the fleet is above 20Y. LR2 vessels older than 20Y represent 5% of the global LR2 fleet. Hence, 12% of the LR2/Aframax fleet is older than 20Y. In conclusion, the supply side of LR2/Aframax ships remains limited due to an aging fleet and relatively low order book, unable to offset the rising fleet age. On the other hand, the MR market remains stronger due to the more considerable disparity between the average fleet age and order book. MR vessels older than 15Y represent 41% of the global MR fleet, while the order book is 9%. The Red Sea crisis is still a decisive factor in supply chain disruptions. Before the Houthis attacks, 12% of the global CPP had been transited via the Suez Canal. Looking deeper, the Red Sea route is crucial for LR2 ships. 45% of CPP transported with LR2 used the Suez Canal, but that number has dropped by almost half since the attacks. TORM FY23 results TRMD ended up 2023 with fleet of 90 vessels, including 21 LR2, 10 LR1, and 59 MR. The fleet's average age is 12Y. 74% of the vessels have scrubbers. The chart below shows TRMD's fleet changes in FY23. TRMD annual report In FY23, the company sold five MRs, five LR1s, and one LR2. On the other hand, TRMD purchased 23 vessels: seven MRs, seven LR1s, and nine LR2s. So, the company increased its fleet by 12 vessels in FY23. The fleet changes increased the percentage of LR vessels in the fleet, reaching 50%. For 1Q24, TRMD fixed 82% of its fleet-earning days at $45,036/day TCE. For FY24, TRMD covered 25% of its earning days at $44,089/day. The graph below represents TRMD TCE for the last few years. TRMD annual report 2023 was a strong year compared to 2021 and 2022. Only in 3Q23 were the day rates lower than in FY22. TRMD achieved the highest TCE FY23 in 1Q23, $41,717/day. 4Q23 ended up at $37,985/day TCE. The FY23 composite day rate is $37,124. By segment, TRMD achieved the following TCE rates: LR2s at $44,048/day, LR1s at $40,498/day, and MRs at $36,122/day. YoY TRMD realized $3,000/day TCE growth. Meanwhile, the company kept the YoY OPEX growth rate in check. FY23 daily OPEX is $7,069 vs FY22's $6,825. Rising revenues and relatively stable expenses resulted in improved margins. The gross margin increased to 57.5% in FY23 from 54.2% in FY22, and the operating margin reached 45.9% in FY23 vs 41.7% in FY22. The following chart shows the company's financial highlights for FY23. TRMD annual report TRMD delivered record-high figures FY23: $1,520 million in revenue, $1,084 TCE earnings, and $846 million adj. EBITDA. The growing rates and relatively stable OPEX boosted the company's profitability. FY23 EPS reached $7.75/share, 12% higher than FY22. TRMD increased its NAV while avoiding excess leverage. YoY NAV growth is 22.6%, while Net Debt growth is 18.9%. Let's look from another angle: YoY net LTV increased to 27.6% FY23 from 24.8% FY22. Such numbers show management's capability to generate value for its shareholders through effective fleet upgrades. TRMD's second way of returning value to its shareholders is through its dividend policy. Among its direct peers, Scorpio Tankers (STNG), Hafnia (OTCQX:HAFNF), and Ardmore (ASC), TRMD offers the best dividend yields. STNG is the best in class, considering its buybacks. However, for income-oriented investors, TRMD remains the undisputed leader. Seeking Alpha TRMD scores the highest figures with 16.2% FWD yield and 20.9% TTM yield. For 4Q23, the company will distribute dividend $1.36/share. TORM balance sheet TRMD maintains a healthy balance sheet with excellent solvency and liquidity metrics. The company has 63% Total Debt/Equity and 42% Total Liabilities/Total Assets. TRMD holds $265 million cash (ex. restricted cash) and owes $1,059 million total debt (inc. lease agreements). On the other hand, TRMD generated $805 million operating cash flow FY23 and $648 million operating income FY23. The net interest expenses for the same period were $41.7 million. The table below shows TRMD debt composition with effective interest and maturity dates. TRMD annual report In 2026 matures the Syndicate Facility, with a $224 million carrying value, and 6.6% effective interest rate. A significant portion of the company's debt matures beyond 2028. Two of those facilities have fixed interest rates: the $149 million CBDL facility and the $195 million CMBFL facility. Both credit facilities have an effective interest rate of 5.7%. In my opinion, that decade will be dominated by structural inflation so that interest rates will remain elevated for longer. Thus, having locked credit facilities with interest rates below 6% and maturity beyond 2028 significantly mitigates TRMD's financial risk. The company's gross LTV is 41%, relatively higher than its peers' figures. STNG scores 35% LTV and HAFNF 33%. However, all three companies have net LTVs below 30%. Let's not forget that tangible assets like ships, oil rigs, mines, etc., love inflation. Building a vessel requires steel, labor, and capital. In an inflationary environment, all these ingredients are getting costlier, increasing the prices of new buildings. Hence, ship owners' NAV grows, leading to lower LTV (if debt levels are stable). Valuation TRMD trades at 2.57 EV/Sales, 4.92 EV/EBITDA, and 1.75 Price/Book. All figures are TTM. Seeking Alpha The group's most expensive is SNTG based on EV multiples, while ASC is the cheapest. HAFNF commands are like TRMD multiples. STNG leads the pack because it owns the best fleet in the group, considering its average age of 8.1Y and specifications (78% of the fleet has scrubbers). Conversely, ASC lags due to its age and lack of scrubber-fitted ships. Considering FWD multiples, TRMD trades at 2.84 EV/Sales and 4.49 EV/EBITDA. Based on EV/Sales, the company offers the most value for its present price. Last but not least is to compare TRMD with the other three major product tanker owners, based on fleet quality, PNAV, and LTV. The table below compares TRMD, HAFNF, and TRMD fleet specifications (vessel sizes, fleet age, and scrubbers availability), PNAV, and gross LTV. Author's archive Considering the shipping investors' triad (fleet quality, PNAV, and LTV), TRDM offers less than STNG. Despite the attractive dividends, TRMD is expensive. The only motivation to buy at the present price would be the income. In my opinion, the upside potential is limited compared to STNG and even HAFNF. Investors Takeaway Product tankers remain an attractive investment. However, we have to consider where we are in the cycle. Clean tankers are ahead of the crude oil, bulk carriers, and OSVs, so the risk-reward is gradually diminishing. TRMD offers juicy dividend yields to lure investors. However, the capital gains seem limited at the current market price. The CPP demand/supply balance is a more pronounced risk for the clean tanker thesis. Globally, the refinery capacity is growing despite the closures in New Zealand and Australia. HAFNIA presentation Asia/Pacific and Middle East refinery output has increased, resulting in higher tonne-mile demand for product tankers. On the other hand, CPP imports in Australia and New Zealand grew by 60% due to closed refineries, which means even more demand for clean tankers. The two idiosyncratic risks are operational and financial. Compared to STNG and HAFNF, TRMD has one drawback: it's a relatively old fleet with an average age of 12Y. The company does a great job updating its fleet. However, the 12Y average age carries operational risks due to higher maintenance and repair costs and extended downtimes. TRMD has a robust balance sheet and ample liquidity. The company can easily cover its debt obligations and OPEX, mitigating the financial risk.  I am still invested in clean tankers and hold STNG shares. However, I increased my exposition to themes with higher risk reward such as VLCC crude tankers, Capesize bulk carriers, and offshore supply vessels. TRMD is a good option for income-minded investors; however, the risk-reward at the current price is not skewed in investors' favor. My verdict is a hold rating.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2422479968"}