Nordic American Tankers in the red

Nordic American Tankers (NAT)

Nordic American Tankers announced its 4Q2016 Report:

2016 was a very good year for NAT in a volatile tanker market. The results for the fourth quarter (TCE $21,600) came out solidly higher than the third quarter (TCE $16,700).

So far, 2017 has started at levels (TCE $25,000) well above the fourth quarter. We are now reaping the benefits of increasing our fleet over the last few years.

A key part of our business model is our relentless focus on efficiency and operating costs. It is also a priority to have a low leverage. NAT has the best Total Return[1] for our shareholders. Our annual Total Return (profitability) since 1997 is about 10% p.a. In the same period, the NAT dividend yield is about 11%. Risk management is important for a company in order to be successful in both a strong and a weak market.

In addition to paying a quarterly dividend, we wish to continue building a cash position in order to keep the low debt level when we grow our fleet.

The success of the placement of $120m in the autumn of 2016 was due to our proven business model.
The capital we raised strengthened our company by allowing NAT to enter into agreements with Samsung Heavy Industries Co. Ltd., for the construction of three Suezmax tankers of about 157,000 deadweight tons to be delivered during the second half of 2018. The newbuildings are expected to be financed mostly with proceeds from the offering, cash from operations and with debt.

Growth of a homogenous Suezmax fleet is a key success factor for NAT. The three additional newbuildings will increase the fleet by 10%, enlarging dividend and earnings capacity. We are engaged in transportation of crude oil. NAT has no investments in the dry cargo or container sectors that are facing challenges.

We consider our close dialogue with big oil in the West and in the East as important undertakings. Our services are strongly related to safety for our crew, the environment and our assets.

NAT has a cash break-even rate below $11,000 per day per ship, including financial charges and G&A costs. The operating expenses for our vessels are low; about $8,400 per vessel per day. Operating expenses for all of our vessels are more or less the same. This is above all a result of strict maintenance procedures and a homogenous fleet. The drydocking costs for those of our vessels that are more than 15 years are on average less than $2.0m per vessel which is at the same level as the rest of our fleet.

As expressed earlier, shipbuilding technology for crude oil tankers has not changed much over the last 20 years. Whether a ship has been around five years or fifteen years or longer does not matter as long as they are well maintained.

In the tanker sector, the NAT stock has significant liquidity, allowing investors to buy and sell shares whenever they wish. In 4Q2016 about 2m shares on average were traded daily with an average daily trading value of around $18m per day. The average volume for 2016 for NAT was about 1.7m shares per day.

On January 23, 2017, NAT declared a cash dividend of $0.20 per share for 4Q2016, payable to shareholders of record as of February 10, 2017. Payment of the dividend is expected to be on or about February 24, 2017.

Some observations:

  • NAT has paid quarterly dividends 78 times of $48.11 per share during the period since 1997.
  • Some observers in the industry do not understand that Net Asset Value (NAV), or the steel value of a vessel, is irrelevant when valuing NAT as a going concern.
  • Together with our shareholders, our customers are the most important constituency in the Nordic American sphere.
  • The recent equity offering of $120m was for expansion beyond the present 30 vessel fleet. In October 2016, NAT announced agreements with Samsung to build three Suezmax newbuildings for delivery in 2018. Including these three newbuildings, we expect that the NAT fleet will consist of minimum 33 vessels. The delivery of our newbuilding MT Nordic Space is expected to take place at the end of February this year.
  • The quality of the NAT fleet is at the top as evidenced by our vetting statistics, that is, inspections of our ships by clients. In such vetting processes safety for our crew, the environment and our assets are in focus.
  • Generally, a low oil price is positive for the tanker market as it is stimulating the world economy.
  • Adjusted Net Operating Earnings[2] (cash surplus) has been as follows: $28.2m for 4Q2016, $21.7m for 3Q2016 and $57.2m for 4Q2015.
  • NAT has a credit facility of $500m, maturing in December 2020.
  • A homogenous fleet reduces our cash operating costs, which helps to keep our cash break-even rate below $11,000 per day per vessel, including financial charges and G&A costs.

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