Crude Tanker Industry: Will the EV/EBITDA Continue to Fall?
The average forward EV/EBITDA multiple on September 28 was 5.51 and the median multiple was 5.35. The average multiple rose compared to the week before.
According to data from Athenian Shipbrokers, the VLCC orderbook rose in September to 37.8 million DWT from 36.2 million DWT in August 2015.
In September, time premium, which is a ratio of secondhand tanker value to the current newbuild price, fell from 88% to 84%. Despite this drop, industry participants are still willing to pay more for secondhand vessels compared to their value.
In an already oversupplied market, Iran says it can boost its exports by 1 MMbpd within six months. This will add to the total available supply of oil, which will put downward pressure on oil prices.
Brent crude oil prices ranged from $46 per barrel to $50 per barrel in September 2015. The EIA forecasts crude oil prices to average $49 per barrel in 2015 and $54 per barrel in 2016.
In August, China crude oil imports amounted to 26.59 million tons, which equals 6.26 million bpd (barrels per day). According to industry analysts, refinery margins in Asia have shown recovery, which should increase demand for crude oil (DBO).
US oil production was recorded to be 9,096 thousand barrels a day on September 25, 2015, compared to 8,837 thousand barrels a day a year ago. With rising production levels, there have been talks of lifting the US crude export ban.
U.S. products supplied for the week ending September 25 totaled 19,591 thousand barrels per day, which was 3% less than the prior week. A decrease in demand for petroleum products decreases the demand for crude oil (DBO), which affects crude tanker companies.
Markit’s manufacturing PMI, which is an indicator of a country’s economic health, stood at 47.3 for China in August. Weak car sales data and the decline in industrial activity are signs that the slowdown in the Chinese economy has continued.
VLCC rates (very large crude carrier) for the benchmark route Gulf to Japan rose from $49,400 per day last month to $112,100 per day for the week ending October 2, 2015.
Tsakos Energy Navigation (TNP) has a Wall Street analyst consensus rating of five, or a “strong buy.” All of the 14 analysts that cover the stock gave it a “buy.”
Comparatively, Frontline (FRO) has the lowest valuation multiple of 4.18. Though the company has substantially reduced its debt, it’s still the most leveraged company among its peers.
Nordic American Tanker (NAT) and Euronav (EURN) have attractive forward dividend yields of 9.86% and 9.84%, respectively.
Net debt to EBITDA for Frontline (FRO) has drastically decreased from 9x to 3x, as the company paid off a substantial amount of debt in the second quarter.
Shipping companies are capital intensive, so looking at the financial leverage for these companies is of utmost importance for investors.
In the crude tanker business, there are two markets: the spot market and the time charter market.
Average fleet age impacts the vessel operating costs, capital expenditure plans, and capital structure of a crude tanker company.
Crude tanker companies believe this to be a good time for fleet expansion, as tanker rates are rising and tanker prices remain flat.
DHT Holdings (DHT) has a mixed fleet portfolio of 14 VLCCs, two Suezmax, and two Aframax.
Why did some crude tanker companies outperform industry peers while other companies underperformed? In this comparative series, we’ll try to answer that question.