STNG - Scorpio Tankers

[Gamecock-YT]

Well hopefully no one on here bought short term calls before the earnings release like the folks at r/wallstreetbets did:

 

 

Evercore analyst:

 

“And Scorpio Tankers [NYSE: STNG] is even more insane,” Chappell continued. Before market open on Wednesday, Scorpio Tankers reported net income of $46.6 million for the first quarter of 2020, triple its net income in the same period last year. Earnings of 85 cents per share demolished the consensus forecast of 49 cents per share.

 

“That stock was trading below 50% of NAV, they crushed the first quarter, second-quarter-to-date rates were very good and indications are that current rates are even higher, the call went really well, and the stock gets puked?” Chappell exclaimed.

 

During the conference call with analysts, Scorpio Tankers head trader Lars Dencker Nielsen revealed that one of the company’s LR2 product tankers (vessels with a capacity of 80,000-119,999 deadweight tons) was just booked at an eye-popping rate $178,000 per day for 40 days.

 

And yet, Scorpio Tankers’ stock closed the trading day down 10% in almost triple average volume.

 

“That one is mind-blowing to me, but it shows that investors don’t try to find safe havens when they’re exiting a hot sector,” said Chappell.

 

Maybe it'll take Bugbee buying another round of call options to get the price higher. BofA even raised their price outlook by $2 with estimate YE P/E 3.3, EV/EBITDA 4.3 and FCF Yield of 44.3%

[keerthiprasad]

nice interview with Bugbee:

 

[EricSchleien]

nice interview with Bugbee:

 

 

Thank you for this!

[Spekulatius]

So q1 was really solid and q2 LR's are being booked at double q1 rates....yet the stock is down. Do people hate tankers this much? The market is crazy.

 

The market is forward looking and doesn’t give the tankers a multiple for what amounts to one ofF earnings. I actually think it’s rational. In addition, given the history of players, you are not going to see a lot of cold hard cash being paid out, even if they would make money for a longer period of time.

 

Something like KNOP, which actually pays out a decent amount of cash, seems way more attractive.

[keerthiprasad]

So q1 was really solid and q2 LR's are being booked at double q1 rates....yet the stock is down. Do people hate tankers this much? The market is crazy.

 

The market is forward looking and doesn’t give the tankers a multiple for what amounts to one ofF earnings. I actually think it’s rational. In addition, given the history of players, you are not going to see a lot of cold hard cash being paid out, even if they would make money for a longer period of time.

 

Something like KNOP, which actually pays out a decent amount of cash, seems way more attractive.

 

Uncertainty and lack of forward clarity can make tankers difficult to value (KNOP excluded - very different business model). STNG was trading above $30 in January. Since then they will have two blowout quarters which will decrease debt. Going forward they have 2020 regs and a low order book decreasing supply of boats. Today it trades around $17. The future hasn't been proven yet, so it is hard to get anyone to pay for it, but it looks like decent upside.

[keerthiprasad]

Also if you like cash being paid out, check out EURN. $1.1 being paid next month.

[Edward]

Just my 2 cents.

 

The entire industry is a disaster zone. Horrible business + pile of debt + terrible management. Generally it's an avoid at any price kind of thing, unless you are talking about investing in secured debt.

 

If you put a gun to my head and tell me to pick a stock, I would pick TORM plc without hesitation. They have very similar/slightly better P&L vs Scorpio tankers, same business, but way less debt, good management, and Oaktree of Howard Marks' fame owns 66% of the equity.

 

Bottom line is you are buying STNG today at 4B$ EV, vs TORM at 1.5M$ EV. less than half the valuation for about the same business. And if the company turns a decent profit your money won't get immediately stolen. So there.

 

 

[movys]

The interview with Bugbee posted above is required listening for anyone investing in the industry.  The stars have finally aligned for a super cycle in shipping.  ~15% of the global fleet is tied up in storage right now, demand is starting to recover, the orderbook is at historical lows, and shipyard capacity is more constrained than ever.

 

NAVs are going up and will continue to go up.  Stock prices have languished because people are too focused on the technical dynamics driving rates over the short-term (contango, port congestion, etc.).  The reality is that day rates are going to stay well above historical averages for the next 2-3 years because of recovering demand and a shrinking fleet as older ships are scrapped and new ones are not being built. 

 

It's a terrible industry in general but the stars have finally aligned and offered a great opportunity for those who recognize why this time actually is different.

[keerthiprasad]

I agree that things look good for product tankers moving forward. I think anyone should expect some volatility though.

 

Additionally, the risk of yards dumping cheap boats (product or crude)  is always looming as well...

 

https://splash247.com/china-merchants-orders-vlcc-pair-at-dsic/

 

(very cheap VLCCs).

[TBW]

Basic question, how do these companies calculate NAV? Are they realistic? How does the current nav's compare to scrap value?

 

And another begginer question, what is the factor limiting supply, hasn't this industry been in oversupply for over a decade now?

[keerthiprasad]

NAV is generally pretty realistic. Not hard to find numbers on recent sales of similar aged tankers. Some companies are a bit aggressive but not overly so. Scrap value is most relevant with ships that are older.

 

A few of things holding back medium term supply:

Boats being used for storage. Draw down could take a year. This is obviously not a long term factor.

As tankers age survey costs get higher (earlier for clean tankers than crude). IMO 2020 regs will also make scrubbers ($$$) necessary. These costs will push boats to scrap.

Order books are historically low (especially in the clean market).

Many yards have closed.

Financing is harder to get for tankers.

IMO2030 is part of peoples long term planning.

 

The yards and tankers are often propped up by governments so these factors could change. 

Additionally, none of these factors result in permanent fleet reduction. It only takes a couple irrational players to kill the market.

 

[Spekulatius]

NAV is generally pretty realistic. Not hard to find numbers on recent sales of similar aged tankers. Some companies are a bit aggressive but not overly so. Scrap value is most relevant with ships that are older.

 

A few of things holding back medium term supply:

Boats being used for storage. Draw down could take a year. This is obviously not a long term factor.

As tankers age survey costs get higher (earlier for clean tankers than crude). IMO 2020 regs will also make scrubbers ($$$) necessary. These costs will push boats to scrap.

Order books are historically low (especially in the clean market).

Many yards have closed.

Financing is harder to get for tankers.

IMO2030 is part of peoples long term planning.

 

The yards and tankers are often propped up by governments so these factors could change. 

Additionally, none of these factors result in permanent fleet reduction. It only takes a couple irrational players to kill the market.

 

Wasn’t the fact that the crude tankers all need scrubbers to clean the bunker fuel the original thesis for the tanker trade in late 2019? It seems like ages ago.

[keerthiprasad]

NAV is generally pretty realistic. Not hard to find numbers on recent sales of similar aged tankers. Some companies are a bit aggressive but not overly so. Scrap value is most relevant with ships that are older.

 

A few of things holding back medium term supply:

Boats being used for storage. Draw down could take a year. This is obviously not a long term factor.

As tankers age survey costs get higher (earlier for clean tankers than crude). IMO 2020 regs will also make scrubbers ($$$) necessary. These costs will push boats to scrap.

Order books are historically low (especially in the clean market).

Many yards have closed.

Financing is harder to get for tankers.

IMO2030 is part of peoples long term planning.

 

The yards and tankers are often propped up by governments so these factors could change. 

Additionally, none of these factors result in permanent fleet reduction. It only takes a couple irrational players to kill the market.

 

Wasn’t the fact that the crude tankers all need scrubbers to clean the bunker fuel the original thesis for the tanker trade in late 2019? It seems like ages ago.

 

Yes I think that is still true but on hold. The spread between hsfo and vlsfo has disappeared. When oil prices and diesel demand rise vlsfo prices should rise as well. There will be room for a number of non scrubbers, kept in check by fuel oil spreads and age of tanker. Recent oil market has kept many tankers going that otherwise would have been malaffected by fuel spreads.

[Castanza]

https://seekingalpha.com/news/3588929-ardmore-shipping-rejects-hafnias-takeover-offer#scroll_comments

 

Ardmore Shipping (NYSE:ASC) says it rejected an all-stock takeover proposal from Hafnia Ltd. that implied an offer price of $3.87/share, which represented a ~18% discount to its share price on June 19.

 

Ardmore soared +16.2% in today's trade on more than 10x normal volume in reaction to takeover talk.

 

The merged company would have operated 210 vessels, giving it the largest product tanker fleet in the world, edging out Scorpio Tankers (NYSE:STNG).

 

Stifel analyst Ben Nolan speculates the bit could be just an opening gambit, and a deal remains possible if Hafnia sweetens the bid.

 

Nolan also thinks another bidder could emerge, such as International Seaways (NYSE:INSW), Diamond S Shipping (NYSE:DSSI) or TORM (NASDAQ:TRMD).

 

The offer could be a "great deal" for Ardmore, providing the scale it needs, Jefferies analyst Randy Giveans tells FreightWaves.

[rukawa]

I'm trying to figure out the bear case for STNG.

 

everything I see tells me that they are making tons of money right now and will for the foreseeable future months.

 

All i am seeing is confirming my already existing bias.

 

Can anyone give me a reasonable bear case?

 

Spread between hsfo and vlsfo remains low for a longer period of time which gives times to retrofit ships over a longer time frame. During this time shipyards manufacture more ships and supply remains sufficient to prevent a spike in day rates.

[Spekulatius]

STNG at $12.58, near the 52 week low ($12). The tanker thesis tanked

[gfp]

STNG at $12.58, near the 52 week low ($12). The tanker thesis tanked

 

I am actually very interested in STNG shares here.  When was the last time the President of a public company used millions of dollars of their own money to purchase their own stock options in the open market?  I do like Mr. Bugbee on the calls and can understand his point of view.  If he is correct he will do very well.

 

https://www.globenewswire.com/news-release/2020/07/14/2062257/0/en/Scorpio-Tankers-Inc-Announces-Purchase-of-Common-Shares-by-Scorpio-Services-Holding-Limited-and-Call-Options-by-President-of-the-Company.html

[rukawa]

STNG at $12.58, near the 52 week low ($12). The tanker thesis tanked

 

I am actually very interested in STNG shares here.  When was the last time the President of a public company used millions of dollars of their own money to purchase their own stock options in the open market?  I do like Mr. Bugbee on the calls and can understand his point of view.  If he is correct he will do very well.

 

https://www.globenewswire.com/news-release/2020/07/14/2062257/0/en/Scorpio-Tankers-Inc-Announces-Purchase-of-Common-Shares-by-Scorpio-Services-Holding-Limited-and-Call-Options-by-President-of-the-Company.html

 

I find those buys strange. Implied vols are very high...calls seemed expensive to me when I looked.

[Saluki]

I've been long and wrong on this since last year, but I haven't sold any shares.  They are making more money than they did last year, they paid down $200 million in debt AND beat earnings estimates this quarter and the stock still went down. It's half the price it was last year, and they are making way more money.  I think the lower demand for clean fuel due to exogenous shock to the economy ate away at the price differential between clean fuel and dirty fuel, as a result fewer ships without scrubbers were scrapped (and then high rates for dirty tankers used as storage) and less demand for clean product tankers to move the fuel around.

 

I own a basket of floating things and this is my biggest position, but it's definitely a trade, not a forever investment. And they are all down.  I'll give it another year to start playing out before I start to lose patience.  Generally there is stronger demand for product tankers in the 3rd and fourth quarters (heating oil for homes, etc) and they *should* see even more money coming in that they can use to pay down debt.  If that doesn't help the stock price, then I don't understand what is going on with the markets.

[ValueHippie]

Why do you see it as a trade?

The order book is at an all time low, while the fleet age is approaching an all time high. There are absolutely no signs of that changing.

Stick around for a few years and wait for the supercycle...

[Spekulatius]

Why do you see it as a trade?

The order book is at an all time low, while the fleet age is approaching an all time high. There are absolutely no signs of that changing.

Stick around for a few years and wait for the supercycle...

 

So, first this is a bet on scrubbers/ IMO 2020 that didn’t work out (YE2019) , then it was a bet on using tankers as floating storage to bet on crude contango (April 2020) that didn’t work out, now it’s a bet on a tanker shortage supercycle (unknown future)?

 

Just as a heuristic, I can’t say that thesis creep has worked for me very often. You also have to bet that management doesn’t do anything stupid in the meantime, even if we get a supercycle some time down the road. That’s not something one can take for granted in the tanker space.

[Saluki]

Thesis creep is my concern.  I viewed the gallons of cash flowing into the sector from the floating storage disruption as "being right for the wrong reason".  There were a couple of supercycles that paid off incredibly for owners (when internal combustion ships displaced steam ships in the 1980s and the doublehull displacing single hull after exxon valdez) but the reason that shipping is in the sh1tter is that no matter how good things get, ship owners always screw it up by buying too many ships and they get back to operating in a terrible commoditized business, which is why it's a trade for me, not an investment, like berkshire that i've had over a decade and plan to hold forever.

 

I saw Scorpio Bulkers drop 12% in one day last week, so I checked the news and saw that they announced they were buying a ship to install windmill generators (nothing to do with bulk shipping obviously).  This was a couple of months after they did a capital raise at prices way below NAV to strengthen the balance sheet.  So, yeah, I want to make some money with these guys but I don't want to marry into the family.  Take a look at Euronav, the reason that everyone loves them is that they committed to spending 80% of income on dividends and buybacks (i.e. they can't do anything stupid with the money if they give it back to shareholders). 

 

Anyway, I still like these guys and paying down the debt makes me more comfortable with the position.  I think since during the floating storage event some product tankers got greedy and went from carrying clean product to dirty product (and it's very expensive to switch back), that plus having the newest fleet should help them make more money.

[gfp]

I hope nobody bought STNG shares on a floating storage contango windfall thesis.  Although the cash did help knock some debt out.  I'm a buyer of STNG today.  I like Bugbee.  I came to this space late I suppose - but so far it does look like the scrubber "thesis" did not work out.  The clean tanker market and the 15 year cut-off seems pretty straightforward though.

[ValueHippie]

Why do you see it as a trade?

The order book is at an all time low, while the fleet age is approaching an all time high. There are absolutely no signs of that changing.

Stick around for a few years and wait for the supercycle...

 

So, first this is a bet on scrubbers/ IMO 2020 that didn’t work out (YE2019) , then it was a bet on using tankers as floating storage to bet on crude contango (April 2020) that didn’t work out, now it’s a bet on a tanker shortage supercycle (unknown future)?

 

Just as a heuristic, I can’t say that thesis creep has worked for me very often. You also have to bet that management doesn’t do anything stupid in the meantime, even if we get a supercycle some time down the road. That’s not something one can take for granted in the tanker space.

 

Fully agree! But given today's price there isn't much that has to go right.

[rukawa]

Why do you see it as a trade?

The order book is at an all time low, while the fleet age is approaching an all time high. There are absolutely no signs of that changing.

Stick around for a few years and wait for the supercycle...

 

So, first this is a bet on scrubbers/ IMO 2020 that didn’t work out (YE2019) , then it was a bet on using tankers as floating storage to bet on crude contango (April 2020) that didn’t work out, now it’s a bet on a tanker shortage supercycle (unknown future)?

 

Just as a heuristic, I can’t say that thesis creep has worked for me very often. You also have to bet that management doesn’t do anything stupid in the meantime, even if we get a supercycle some time down the road. That’s not something one can take for granted in the tanker space.

 

Fully agree! But given today's price there isn't much that has to go right.

 

Question to the bulls....what would have to happen for you to become a bear. I mean what would have to go wrong.

 

And a separate question...if I want to learn more about crude and product tankers are there some good resources?