Nordic American Tankers: Bet On A Strong Suezmax Market For Dividend Seekers

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The crude tanker market remains strong due to limited supply and growing tonne-mile demand for crude oil transportation.FY23 NAT realized $262 million net voyage revenue, $127 million net operating ...

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The impressive results are due to improved TCE rates and stable OPEX.NAT has a 56% total debt-to-equity ratio and 38.8% total liabilities to total assets. The company has $31.1 million cash and $301 million total debt.The company trades at a 15% discount to its NAV and scores a 26% LTV. NAT pays dividends with attractive yields at 11.9% TTM and 12.4% FWD.NAT is still part of my portfolio. I have added more shares since my previous report. I give NAT a buy rating.   Dikuch/iStock via Getty ImagesNote: I previously covered Nordic American Tankers (NYSE:NAT) in February with a Buy rating. In my previous take on NAT, I pointed out the company’s strengths: its Suezmax-only fleet and robust financials. I discussed the Red Sea crisis and its impact on crude oil tankers' tonne-mile demand. In today’s analysis, I dissect the last earning report, update the valuation, and add market comments. Market Update The crude tanker market remains robust given the supply side, limited by an aging fleet, low order book across all tanker sizes, and reduced shipyard capacity. Geopolitical volatility is the decisive factor that stresses global supply chain integrity. The Red Sea crisis, combined with the Panama Canal drought, is an unprecedented event. The sanctions imposed on Russia and the fierce Ukrainian attack on Russian downstream infrastructure add even more uncertainty. The result is higher tonne-mile demand for crude oil transportation. Going into detail, NAT has a concentrated portfolio of Suezmax tankers. Their supply is limited by a low order book and an aging fleet. DNVThe order book represents 10% of the global Suezmax fleet, while the vessels older than 15Y are 32%. The order book historic average for Suezmax tankers is 20%. New orders are challenged not only by the limited shipyard's capacity. Structural inflation remains the decisive factor that pushes the prices of new buildings. The following equation sums up: The rising cost of financing + rising cost of labor + rising cost of steel > rising price of newbuilds > growing NAV > declining order book > tighter supply side  The shipyards are already preoccupied with building LNGC, LPGC, car carriers, and container vessels. As the equation shows, tangible assets thrive in an inflationary environment, boosting the company’s NAV. In conclusion, the supply side of tankers is inelastic, unlike the demand, resulting in boom-and-bust cycles. We are in the expansion phase, where the growing demand exceeds the constrained supply. NAT FY23 results discussion NAT employs 15 of its 20 vessels at a spot market. For 4Q23, the company achieved an average TCE of $39,170/day, lower than the 4Q22 figure of $49,035/day. However, looking at the big picture, FY22 NAT scored an average TCE of $24,725/day. For 1Q24, NAT reported that 57% of spot voyage days are booked at $40,690/day. NAT management plays well in the shipping cycle, considering the company’s predominant exposure to spot rates. Another thing worth mentioning is the following quote from the last Special Call on March 07, 2024. And I would like to add that when we ordered the 2 of our recent ships, we paid about $54 million, $55 million. And a close associate of ours, he said that I was mad when I said we should order two ships at $54 million, $55 million. And we've had feelings out in the market; what would it be the price now? And the price would be in excess probably of $80 million. And so that gives us assurance and it gives us financing stability. Adding ships to the fleet in the first half of the expansion phase is a great way to magnify the company’s NAV. Given the shipyard's availability for crude tankers beyond 2026, buying second-hand vessels represents an excellent deal for ship owners. Now, let’s look at the last income statement, which shows the FY23 and 4Q23 figures. NAT 4Q23 reportIn 4Q23, NAT delivered $59 million net voyage revenue, $24.6 million net operating income, and $17.5 million net income. Compared to 3Q23, those figures are higher, nevertheless lower than 4Q22. Looking at quarterly figures, it’s worth noting that the vessel operating expenses have remained stable. Another positive development is declining interest expenses. YoY, they dropped from $8.04 million in 4Q22 to $7.2 million in 4Q23. EPS has doubled QoQ to $0.08/share in 4Q23 from $0.04/share in 3Q23. FY23 NAT realized $262 million net voyage revenue, $127 million net operating income, and $98.7 million net income. The impressive results are due to improved TCE rates and stable OPEX. FY23 EPS is $0.47/share, while FY22 is $0.07/share. Most importantly, the cash flows (FCF and operating) increased significantly on an annual basis. FY23 NAT generated $65.8 million FCF and $139 million operating cash flow. For reference, in 2022, the company delivered $(71.3) million FCF and $24.1 million operating cash flow. NAT pays dividends with attractive yields at 11.9% TTM and 12.4% FWD. The table below compares NAT with other crude tanker companies with concentrated fleets: Teekay Tankers (TNK), DHT Holdings (DHT), and Okeanis Eco Tankers (ECO). Seeking AlphaNAT will distribute a $0.12/share dividend for 4Q23, double the 3Q23 distribution of $0.06/share. NAT Balance sheet NAT scores excellent solvency and liquidity metrics. The table below shows the company’s debt structure and interest coverage. Koyfin NAT has a 56% total debt-to-equity ratio and 38.8% total liabilities to total assets. The company holds $31.1 million in cash and owes $269 million in long-term debt and $301 million in total debt. Interest coverage is more than sufficient. In FY23, NAT incurred $29.2 million in interest expenses while delivering $127 million in operating income. The company financed its fleet via CLMG/Beal Banks and Ocean Yield. NAT has $84.6 million outstanding on its CLBG facility and $220.1 million in its Ocean Yield financing. The current portion of the long-term debt is $31.9 million. Valuation  Let’s examine how expensive or cheap NAT is. The table below compares NAT, DHT, ECO, and TNK based on fleet specifications, PNAV, and gross LTV. The data used to calculate fleet replacement cost is taken from Fearnely’s and Compass Maritime's weekly reports.   Author's data NAT trades at a 15% discount to its NAV and scores a 26% LTV. NAT has one major drawback: its fleet age. However, considering the current stage of the crude tanker cycle, the point is to own any floating steel. As pointed out earlier, tangible assets enjoy inflation, so from a valuation perspective, the older fleet is not an issue. ECO commands the highest premium because it owns the newest fleet, which is fully equipped with scrubbers and pays juicy dividends. TNK is in a position similar to NAT, given its fleet specifications. Looking at multiples, NAT and TNK trade have lower values than DHT and ECO. Seeking AlphaThe reasons are the same: aging vessels and zero scrubbers. With a tight market, the tide will lift all boats (pun intended). So, buying a Suezmax fleet at a discount seems to be a reasonable investment. The dividend yields are good enough to compensate for the time and risk. Final thoughts The crude oil tankers market is tight due to growing demand and shrinking supply. I believe we are halfway through the cycle, so there is more Alpha to extract. Betting on companies with concentrated fleets like NAT is my preferred way to play the shipping themes. Of course, such an approach comes with caveats. The major one is figuring out which subsegment will thrive following the shifts in macroeconomics, geopolitics, and the shipping industry. NAT carries one more pronounced risk: its older fleet. The older the ship, the higher the maintenance and repair costs. A lack of scrubbers is also a drawback. Higher OPEX and the lack of scrubbers squeeze the company’s profit margins compared to DHT and ECO. As seen in the chart below, NAT gross and EBITDA margins lag DHT and ECO numbers over the last four years. Koyfin The recent peak in profit margins, surpassing DHT and ECO, is an exception, not a rule. Suezmax day rates have been stronger over the last 12 months than VLCCs, as seen in the chart below. Fearnley's Another reason for improved NAT margins was the company’s stable operating expenses YoY. Despite the lack of scrubbers and their relatively old age, NAT vessels will remain in high demand simply because the supply is limited and demand is growing. The systematic risk associated with declining crude demand is always present. However, I classify such a scenario as possible but not probable. The global thirst for oil keeps rising, overtaking supply growth. Even EIA confirmed that in its last report discussing the oil market. In the coming years, geopolitical volatility will be a decisive factor for shipping investors. Considering the developments in the Middle East, I do not expect a resolution on the Red Sea crisis in the coming quarters. The primary beneficiaries are container ships, with crude/products tankers second. Simply put, the tonne-mile demand will keep rising, resulting in higher TCE rates.  NAT is still part of my portfolio. I have added more shares since my previous report. Alexander Hansson, a board member and son of company's CEO Herbjorn Hansson bought shares for $1.36 million in 1Q24. Active insider purchases add more conviction to my thesis. I expect robust Suezmax rates FY24, which will enhance NAT’s profitability further. The price action has been disappointing, though providing a good entry point. In the meantime, the dividends are excellent compensation for the waiting time. I give NAT a buy rating again.","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/2423203171"}