Valuations and outlook
With Scorpio Tankers (STNG) reporting strong results for 2013 and the 1Q14, the company’s growth trend suggests positive performance in the upcoming months. Factors that are supporting Scorpio’s positive outlook include a strong pipeline of new fleet additions, a decline in charter-in vessels boosting the earnings before interest, taxes, depreciation, and amortization (or EBITDA) margin significantly over the next two years, and a good dividend yield of 3.9%.
STNG is fully funded for its massive expansion plans. Potentially, there should be no equity dilution over the next two to three years.
For 2015, STNG is currently trading at an enterprise value (or EV) t0 EBITDA valuation of 9.22 as compared to Navios Maritime Acquisition (NNA), Capital Product Tankers LP (CPLP), and Tsakos Energy Navigation Ltd. (TNP) at 8.8, 11.3, and 8.8, respectively. The Guggenheim Shipping ETF (SEA) tracks the shipping companies.
Scorpio Tankers has no direct competitors for the purpose of relative valuation as other large players are in the very large gas carrier (or VLGC) industry. Considering the revenue and EBITDA estimated surge and the significant attractiveness in valuation in 2015 as compared to current valuations, Scorpio Tankers has strong upside potential.
Since mid first quarter, STNG is experiencing some pressure on its freight rates for product tankers. As compared to the first quarter, the second quarter is likely to face more pressure due to reduce volatility in underlying commodity pricing, refinery turnarounds, and draw downs of excess winter inventories which have dampen some seasonal trades.
However, STNG expects robust demand from emerging markets and growing capacity for exports from both the U.S. and the Arabian Gulf. Also, it expects gasoline volumes to increase substantially in the coming weeks and months.
Looking ahead, STNG foresees newbuilding delivery percentage going down as deliveries exceeding new orders with a weakness referred product on the capital market. However, it’s experiencing higher pay from its customers for forward rates similar to their last year pattern.
For the 2Q14, STNG estimates loss per share to be in the range of $0–$0.04. The estimates don’t include the company’s share of profit or loss from Dorian’s operating activities for the second quarter.