Nordic American Tankers: When Double-Digit Dividend Yields Are Not Enough (Rating Downgrade)

seekingalpha2024-09-13

VLCC tankers offer better risk-reward due to lower order book and higher number of aging vessels compared to Suezmax.Nordic American Tankers has a solid balance sheet. The company’s debt payments are ...

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/2467072714?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/185097199/image_185097199.jpg","is_english":true,"pubTime":"2024-09-13 15:34","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2467072714","market":"sh","top_or_hot":-1,"title":"Nordic American Tankers: When Double-Digit Dividend Yields Are Not Enough (Rating Downgrade)","media":"seekingalpha","content":"<div>\n<p>VLCC tankers offer better risk-reward due to lower order book and higher number of aging vessels compared to Suezmax.Nordic American Tankers has a solid balance sheet. The company’s debt payments are ...</p>\n\n<a href=\"https://seekingalpha.com/article/4720869-nordic-american-tankers-when-double-digit-dividend-yields-not-enough\">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>Nordic American Tankers: When Double-Digit Dividend Yields Are Not Enough (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\">\nNordic American Tankers: When Double-Digit Dividend Yields Are Not Enough (Rating Downgrade)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-09-13 15:34 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4720869-nordic-american-tankers-when-double-digit-dividend-yields-not-enough><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>VLCC tankers offer better risk-reward due to lower order book and higher number of aging vessels compared to Suezmax.Nordic American Tankers has a solid balance sheet. The company’s debt payments are ...</p>\n\n<a href=\"https://seekingalpha.com/article/4720869-nordic-american-tankers-when-double-digit-dividend-yields-not-enough\">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":"MR7.SI","symbol_name":"挪迪克","start_time":0,"source_url":"https://seekingalpha.com/article/4720869-nordic-american-tankers-when-double-digit-dividend-yields-not-enough","article_id":"2467072714","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/185097199/image_185097199.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2467072714","pubTimestamp":1726212894,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Market Update The tanker market follows the basics of asset-intensive businesses. Inelastic supply and erratic demand determine whether we are in a vessel shortage or supply glut phase of the cycle. The order book, fleet age profile, and shipyard capacity define the supply side. Tanker demand depends on the global oil market, a function of the world economy and crude oil production. Another factor is geopolitics. Supply chains depend heavily on international political affairs. A case in point is the Middle East crisis and the Red Sea. In summary, market fundamentals still support my tanker thesis. Since 1Q24, the tanker order book has grown across all segments. The VLCC order book was below 5%, while it is 6.1% today. The Suezmax order book has increased from 10% to 16%. The ratio between the order book and ships older than 20 years is more favorable for VLCCs than Suezmax and Aframax tanker figures. Aframax is widely used to transport oil products, so we have to consider Aframax and L","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"MR7.SI":"挪迪克","NAT":"Nordic American Tanker"},"translate_title":"北欧美国油轮：当两位数的股息收益率还不够时（评级下调）","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MR7.SI":1,"NAT":1},"content_text":"VLCC tankers offer better risk-reward due to lower order book and higher number of aging vessels compared to Suezmax.Nordic American Tankers has a solid balance sheet. The company’s debt payments are well covered. NAT declared a quarterly dividend of $0.12/share. At the present stock price, the dividend yield is 11.9%.Despite NAT's attractive dividends, healthy financials, and PNAV below 100%, I now prefer ECO and DHT.Downgrade NAT to Hold due to better opportunities in the VLCC market.   HeliRyNote: I previously covered Nordic American Tankers (NYSE:NAT) in April. I discussed company advantages like its Suezmax-only fleet, healthy balance sheet, and attractive dividends. At the time of publication, NAT traded at a 15% discount to its NAV and scored a 26% LTV. Since then, the price action has been disappointing. NAT’s share price has moved between $3.5 and $4.1. To be frank, all tanker stocks have performed poorly for the last two quarters due to weak seasonality. In today’s article, I review the NAT 2Q24 report and revise the company’s rating. Introduction Nordic American owns only Suezmax tankers. This is my favorite type of shipowner—one asset, one company. DHT Holdings (DHT), with its VLCC-only fleet, or Himalaya Shipping (HSHP), with its Capesize fleet, come to mind. NAT keeps its balance sheet deleveraged with 54.3% Total Debt/Equity and 39% Total Liabilities/Total Assets. In 2Q24, the company reported day rates at $36,600 and daily OPEX of $9,000/day. QoQ EPS grew from $0.07/share in 1Q24 to $0.10/share in 2Q24. NAT keeps its regular dividend payment intact. At the present stock price, the trailing LTM yield is 11.9%. The tanker cycle has more room for expansion. There are multiple ways to ride the wave. The question is which one to choose from. Is NAT still a viable option? Market Update The tanker market follows the basics of asset-intensive businesses. Inelastic supply and erratic demand determine whether we are in a vessel shortage or supply glut phase of the cycle. The order book, fleet age profile, and shipyard capacity define the supply side. Tanker demand depends on the global oil market, a function of the world economy and crude oil production. Another factor is geopolitics. Supply chains depend heavily on international political affairs. A case in point is the Middle East crisis and the Red Sea. In summary, market fundamentals still support my tanker thesis. Since 1Q24, the tanker order book has grown across all segments. The VLCC order book was below 5%, while it is 6.1% today. The Suezmax order book has increased from 10% to 16%. The ratio between the order book and ships older than 20 years is more favorable for VLCCs than Suezmax and Aframax tanker figures. Aframax is widely used to transport oil products, so we have to consider Aframax and LR2 market dynamics to estimate supply. Anyway, NAT is a Suezmax-only company. Aframax/LR2 supply will be discussed in the product tankers analysis. In summary, crude oil tanker market fundamentals are still appealing. Given its constrained supply, VLCC offers the best risk reward ratio. NAT Fleet NAT owns 20 Suezmax tankers with an average age of 12.6 years. None of the vessels have scrubbers installed. The image below shows the present company fleet. NAT websiteUnlike other tanker owners, NAT is not renewing its fleet. A few ships, Pollux, Luna, and Skier, are 19–21 years old. Older vessels have higher daily operating costs due to increased maintenance and more frequent breakdowns. This translates into higher costs for spare parts, and crew. At that stage of the shipping cycle, buying five to ten-year-old ships delivered now would pay off handsomely in the next few years. First, by growing NAV and second, by improved margins due to lower daily OPEX. Anyway, NAT management is not interested in fleet renewal. 2Q24 results review The table below from NAT’s 2Q24 report shows company financial highlights for the last quarter. NAT 2Q24 report 2Q24 NAT realized $66 million in net voyage revenue, 10% higher than the 1Q24 figures. Compared to 2Q23, revenues decreased by $1.6 million. Vessel operating expenses increased from $15.5 million in 1Q24 to $16.8 million in 2Q24. YoY vessel OPEX has risen by 5.6%. NAT generated $21.6 million net income in 2Q24 vs $15 million in 1Q24. This translated into EPS growth of 42% QoQ. NAT declared lower YoY and QoQ operating and free cash flow. In 2Q24, the company delivered $32.8 million in operating cash flow and $30.9 million in free cash flow. For comparison, 1Q24 figures are $37.6 million and $37.4 million, respectively. The graph below compares NAT FCF yield to Okeanis Eco Tankers (ECO) and Teekay Tankers (TNK). I picked ECO and TNK because both own Suezmax tankers. The former has 8 VLCCs and 6 Suezmax, while the latter has 25 Suezmax and 17 Aframax. The TNK fleet has an average age of 14.7 years, and ECO's is 5.0 years. KoyfinTNK outperforms its peers by a large margin. One reason is zero debt, which translates into $15,000/day breakeven cash flow, a figure lower than ECO's and NAT's breakeven cash flow. NAT declared a quarterly dividend of $0.12/share. At the present stock price, the dividend yield is 11.9%. The following graph compares dividend yields of NAT, TNK, and ECO. KoyfinNAT distributes dividends with the highest yield in the peer group. None of the companies regularly repurchases its shares. That said, dividends are the prime way for NAT's management to return value to the shareholders. Let’s discuss NAT’s balance sheet. In 2Q24, the company declared $40.8 million in cash and $287 million in total debt. Total Debt to Equity is 54%, and Total Liabilities to Total Assets are 39%. The company’s debt payments are well covered. Quarterly gross interest expenses are $7.9 million. In 2Q24, NAT generated $32.8 million operating cash flow and $29.3 million operating income. Valuation To estimate NAT NAV, I use data from Fearnley’s weekly reports. Inputs for the NAV equation are:  Fleet replacement value: $1,050 million Current assets: $117 million Total Liabilities: $335 million Total Debt: $287 million  NAT’s market capitalization is $749 million, while its net asset value is $832 million, resulting in 90% PNAV. TNK trades at 87% PNAV. ECO has a steeper valuation at 112% PNAV. Considering age and scrubber availability, ECO has the best fleet in the peer group. ECO’s multiples are telling. Okeanis trades at 4.8 EV/Sales and 6.4 EV/EBITDA. KoyfinOn the other hand, TNK and NAT have aging fleets, and none of their ships have scrubbers. TNK scores the lowest multiples, 1.9 EV/Sales and 2.8 EV/EBITDA. In summary, considering its PNAV and EV multiples, NAT holds the middle ground. Since my previous write-ups on NAT, company valuation has not moved much. Risks  The prime risk for any tanker owner is declining tonne-mile demand. On the other hand, we have a tanker supply. Tanker fundamentals are still favorable for investors. However, not all tankers are equal. VLCC provides the best risk-reward considering its single-digit order book and significantly higher number of vessels approaching 20 years. Suezmax tankers are not as appealing as VLCCs. As per NAT’s 2Q24 report, the world’s Suezmax fleet consisted of 580 vessels, and the historic average order book is 20%. 108 Suezmax tankers are older than 20, while the order book comprises 94 vessels. In relative terms, this is 18.6% vs. 16%. The number of aging tankers is still higher than that of new orders. Nevertheless, it is not as attractive as it is for VLCCs. The Suezmax market offers less margin of safety due to lower supply imbalances compared to the VLCC segment. In other words, a small fluctuation in oil demand may turn vessel shortage into surplus, resulting in weaker Suezmax day rates. A few words about geopolitics. The Red Sea crisis will persist for a few more quarters, in my opinion. This means supply chains will remain constrained, leading to rising tonne-mile demand. Suezmax tankers are some of the prime beneficiaries. However, if the Red Sea returns to normal, this would impact the Suezmax day rates. To recap, I see less downside risk in the VLCC segment than in Suezmax. Moreover, the Red Sea crisis will eventually be resolved. Suezmax tankers would be among the shipping segments that would be most impacted. Investors Takeaway This is my third article on NAT. In my previous write-ups, I gave NAT a Buy rating. Attractive yields, Suezmax-only fleet, and healthy financials were good reasons for that. Anyway, my opinion has changed. As discussed, VLCC provides the best risk-reward among crude tankers. Despite NAT’s appealing dividends and valuation, I prefer to park my cash in ECO and DHT. I get regular income, plus I get exposure to the VLCC segment.  In conclusion, I downgrade the NAT rating to Hold.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"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":"4.30.2","shortVersion":"4.30.2","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/2467072714"}