Nordic American Tankers Limited

 

NAT Details
 
Higher Demand of Oil Tankers to Boost the Company’s Earnings: Nordic American Tankers Limited (NYSE: NAT) is betrothed of buying, disposing, maintaining, leasing, and leasing three double-hull Suezmax oil tankers.In 4QFY19, the company reported net voyage revenues of $58.8 million, as compared to $44.2 million reported in the year ago period. Operating expenses for the period stood at $37.4 million as compared to $38.8 million. Net gain during the period amounted to $12.73 million as compared to the year-ago loss of $10.5 million.During the quarter, the company declared its 90th consecutive quarterly dividend of 7 cents per share, payable on March 16, 2020. The company expects 2020 outlook to remains solid. Notably, the company has reduced its long-term debt with ~$20 million, further strengthening its balance sheet position. The company’s long-term debt to total assets ratio is ~37%, which is among the lowest in the industry. The company ended the quarter with, cash balance of $48.8 million. Net cash inflow from operating activities stood at $52.8 million in FY19.
 

4QFY19 Key Highlights (Source: Company Report)
 
Other Key highlights: The average Time Charter Equivalent (TCE) during the quarter across its fleet stood at ~$31,700 per day per ship. The tanker market is set to reveal robust strength and positive developments in 2020. Although, the coronavirus is grasping the front-page, the impact is only in the short-term. New regulations, and muted supply of ships are expected to create a strong base for a solid future for the tanker industry.
 
What to Expect: The company is taking necessary measures to expand and maintain a regular and top-quality fleet, by continuing close customer relationships with major oil companies. The company remains focused on hiring its ships with major oil companies. Further, the company has a healthy balance sheet, which is aiding NAT to distribute free cashflow to its shareholders. The company’s fleet consists of 23 well maintained Suezmax tankers that are particularly valuable to its customers. The company further focuses to strengthen this position in a cautious, and transparent way.
 
Valuation Methodology:P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of NAT closed at $4.94 with a market capitalization of ~$727.3 million. The stock made a 52-week low and high of $1.66 and $9.00, respectively, and is currently trading below the average of its 52-week trading range. The stock has delivered a positive return of ~28.65% and 43.19% in the last one month and three months, respectively. Company’s 1QFY20 earnings are scheduled to be announced on 19 May 2020. Debt to equity in FY19 stood at 0.67x, lower than the industry median of 0.71x. Considering the above factors, we have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in % terms). For the matter, we have taken the peer group - SFL Corporation Ltd (NYSE: SFL), GasLog Ltd (NYSE: GLOG), Scorpio Tankers Inc (NASDAQ: STNG), to name few.
 
Given the volatility in oil prices in recent months, weakening oil demand and business activities, tanker companies came in the limelight and the stocks falling in the sector surged sharply.  In-line with the industry, NAT also gained ~42% in the last 3 months. With the given scenario and rise in the demand of oil tankers for storage, earnings for the next few quarters are likely to see a boost. However, considering the decent price movement in the stock, scheduled earnings in the next week, and factors such as tanker rates, spot prices for oil, scenario around contango, etc., the stock carries high risk-reward profile. Hence, we give a “Speculative Buy” recommendation on the stock at the closing price of $4.94, down 0.2% on 14 May 2020. The recommendation is valid at the current price as on May 15, 2020 (intraday trading).
 
 
 
NAT Daily Technical Intra-day Chart on May 15, 2020 (Source: Refinitiv, Thomson Reuters)

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