Big tankers collect a lot of money

By Barry Parker (gCaptain) –

The listed companies that operate the large tanker fleet have now reported earnings for the fourth quarter of 2022. By the end of last year, the market had seen a huge surge. Although spot TCEs for VLCCs and Suezmaxes eased somewhat in early December as Russian crude price caps kicked in, quarterly results were still good.

Results have been so good that the strong-market International Seaways (NYSE:INSW) posted new trading highs after its “earnings hit” announcement of $218.4 million in net income (recalculated to $4.40 per share on full dilution). reached. The share price surged above $50/share as broader stock market indexes trended lower — almost tripling from last year’s levels.

In its Q4 presentation, INSW management indicated that 2022 would be the “strongest year in our history”. Along with the quarterly dividend of $0.12 per share, management sweetened the pot with a special dividend of $1.88 per share, resulting in 2022’s “highest cash yield” (to investors) in history of the company, with nearly $90 million paid to shareholders.

Due to the Diamond S acquisition in 2021, INSW was heavily invested in product tankers, which were a significant contributor to its positive results. Of the $854 million in time charter equivalent (TCE) revenue, approximately $532 million (approximately 62%) came from the transportation of refined products. With average breakeven costs per day of around $17.5k per day and chartered vessels at $50k and $60k, the money keeps flowing in Q1 2023.

In strong markets, shareholder returns are paramount. Referring to a previous statement, Deutsche Bank analyst Chris Robertson wrote: “We believe the market does not fully recognize INSW’s ability and willingness to return significant cash to shareholders in the form of special dividends.”

Another big tanker owner, Frontline (NYSE:FRO), was also focused on shareholder returns, actually catching up on payouts it was holding on to because of its employment (more on that in a minute). Preliminary net income for the fourth quarter of $240.0 million (based on spot TCEs for VLCCs, Suezmax tankers and LR2/Aframax tankers of $63.2K, $57.9K and 58 $.8 per day) was the highest since the boom days (before the collapse) in Q2 , 2008.

Discussing FRO’s Q4 results, Jefferies analyst Omar Nokta stated that the company “announced two dividends today, the Q3 delayed payout of $0.30/share and a Q4 dividend.” Quarter at $0.77/share. Both represent a payout of 80% of earnings.”

Evercore ISI equity analyst Jon Chappell, and a big fan of FRO, also highlighted another positive aspect of FRO’s abundant sea chest – the ability to repay debt. He told investors, “Ample cash on hand now no longer precludes dividends with deleveraging and further debt repayments are likely throughout 2023.”

In February, FRO repaid $60.0 million of its $275.0 million senior unsecured revolving credit facility; The CFO indicated that further repayments are pending.

Behind it all lurks the battle for Euronav (NYSE: EURN); FRO withdrew its “Combination Agreement” in January (while actually increasing its holdings in EURN). Pulling out of the deal (originally announced in July 2022) led to a sit-down of sorts between the parties. Stifel analyst Ben Nolan told clients, “From a business perspective, Euronav is well positioned to continue benefiting from the upside as long as this market holds, but the litigation will be an overhang for the stock until things are clearer.”

Yogi Berra, an analyst of the other breed, said (and I believe I also wrote around the time of the arbitration meeting): “It’s not over until it’s over.”

Meanwhile, the sector continues to outperform as analysts eye longer trade routes (thanks to the new treatment of Russian crude and product flows), an incipient recovery in China and additional freight demand should the US continue its depletion of the Strategic Petroleum Reserve (SPR). Evercore ISI’s Jon Chappell noted that FRO’s marine equipment revenue for the first quarter of 2023 “is well ahead of our previous estimates.”

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