Vessel operating expenses
Tsakos Energy Navigation’s (TNP) vessel operating expenses decreased to $33 million in 4Q15 compared to $38 million in 4Q14. The company sold two vessels in the third quarter, which has brought down its vessel operating costs. But crude (DBO) tanker companies incur vessel operating expenses regardless of whether they employ their vessels in spot or time charter markets. Vessel operating expenses also involve crewing, repair and maintenance, insurance, stores, and communications.
Crude tanker companies have high fixed operating costs. High fixed costs prove rewarding when revenues are increasing, and a company with high fixed costs will see its profits rise by a higher percentage when its revenue is trending upward.
In 4Q15, Tsakos Energy Navigation’s revenue rose by 1.4% over the previous quarter whereas its EBITDA (earnings before interest, taxes, depreciation, and amortization) rose by 8% to $74 million, up from 3Q15’s EBITDA of $69 million and from 4Q14’s $55 million.
Why EBITDA matters
EBITDA is an indicator of the financial performance of a company. It tells us the operating profit of a company. Crude tanker companies are highly capital intensive and have high non-cash costs including depreciation. For this reason, it’s important to assess the performance of these companies based on EBITDA. Companies can also be valued based on their EV-to-EBITDA (enterprise value-to-EBITDA) ratios.
TNP’s EBITDA margin for 4Q15 was 52.2%, up from 49% in the previous quarter and 40% in 4Q14. The EBITDA margins for TNP’s peers are as follows:
- Teekay Tankers (TNK)—49.7%
- Euronav (EURN)—66%
- Nordic American Tankers (NAT)—73%
- DHT Holdings (DHT)—59%
Notably, Wall Street analysts estimate that TNP’s EBITDA will rise by 3% quarter-over-quarter to $77 million in 1Q16.
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