Bumpy Start to Earnings Season: Tankers Results Incoming, Repurchase Time?

In my recent blog post on ShipBrief and the Capital Maritime website, I provided a brief overview of the upcoming Q2-20 earnings season and specifically mentioned how earnings would be pivotal for the tanker sector as well as dry bulk. Both sectors, but especially tankers, have been a bit of ‘battleground trades’ during the past few months. A quick reminder to pay attention this coming week to what should be excellent Q2-20 earnings as well as crucial updates on how Q3-20 fixture are progressing.

Huge Market Discounts, Euronav Reponds

Amidst the market volatility and massive tanker share discounts, Euronav has been heavily repurchasing units at an approximate 30-40% discount to NAV. When the market hasn’t treated them with respect, Euronav has responded by rewarding loyal shareholders with big dividends and repurchasing shares from those who have failed to ascribe proper valuations to their shares. EURN has repurchased enough over the past month to recently surpass 5% of their shares internally owned. We hope that other shipping companies will take notice and also take action to drive massive value.

Earnings So Far: Bumpy Ride

The last week has been a pretty bumpy ride for traders and investors and feels like driving full speed down the road in the picture above. Another shout out to Costamare (CMRE), which delivered a solid quarterly result! Management clearly has their eyes on the long-term strategy and even though shares were volatile, actual operating results were solid. We also saw significant unit price declines from both Navios Partners (NMM) and Capital Product Partners (CPLP) last week alongside distribution cuts.

 NMM has been pressured by weaker dry bulk markets, but is poised to excel in 2H-20 as Capesize rates uplift. Unfortunately, the market is super myopic and only values the latest distribution. CPLP reported one of the strongest quarters in company history, but they chose to take an uber conservative route and slash their distribution by 72% even though their payout had a coverage ratio of over 2.4x. Again, the market has decided to focus purely on the payout, ignoring the adjusted NAV, which management claims is $21.50/unit. With CPLP closing Friday at $5.65, this is nearly a 75% discount- wow! Similarly, NMM closed at $6.34 while adjusted NAV is nearly $30/unit (nearly 80% discount!).

Time to Take Action?

We hope that both CPLP and NMM will take advantage of these silly markets by repurchasing units. Obviously, the balance sheet needs to be stabilized, but when you can buy a dollar of equity at 20-30 cents, its time to buy shares from the fickle market and reward your long-term loyal partners in the process.  Navios Containers (NMCI) announced a $6M repurchase program last week with units recently trading as low as 80-cents. We estimate their adjusted NAV is about $3.50/unit (also nearly an 80% discount). Hopefully NMCI will follow through and drive massive value for owners, of which NMM is the largest.

Major Tanker Earnings Incoming

We saw Ardmore Shipping (ASC), a smaller product tanker pureplay, report solid Q2-20 results last week, but we’re still awaiting results from the much bigger firms such as Euronav (EURN) and Scorpio Tankers (STNG) this coming Wednesday (5 August). We’ll also see results from International Seaways (INSW) this Friday along with DHT Holdings (DHT) the following Monday (10 August).

Bulls will be encouraged by another record or near-record earnings and cash flow result from many of these firms while bears will likely seize on lower q/q rate guidance (even though Q3 is always seasonally weak). Expect the battleground to continue, but the pressure will be on management teams to prove superior operating results and efficient capital allocation. Stay tuned!