Since the rates charged for shipping vessels tanked by over 20 percent recently, the companies in the oil tanker business have taken a beating. A popping of a bubble has been predicted for this industry for a long time. Is this just a temporary sell-off creating a buying opportunity or is it the beginning of a long term decline?
This is one industry where the yields have been extremely high with some topping out above 30% in the past year. However, yields have been dropping, and are probably not sustain-able even at these levels. The shipping industry may end up replacing the sub prime industry as the new ‘bad boy’ sector.
As an example, let’s look at Frontline Ltd. (FRO) which currently yields 11.8%. This Bermuda based company owns and operates oil tankers for transporting crude oil, coal and iron ore. The company has been paying dividends on a regular basis [March, June, August or September, and December) along with special dividends. But if you look at the trend of what they have been paying each year, you will see what I am talking about:
2004 they paid $22.14 per share in dividends
2005 they paid $15.96 per share in dividends
2006 they paid $7.00 per share in dividends
That trend does not look good. When you add that to the fact that the quarterly revenues and the quarterly earnings were down by 25%, it doesn’t look good. The stock has a forward P/E of 14.15, and the company was recently downgraded by UBS.
Second highest is Nordic American Tanker Shipping Ltd. (NAT) is another oil tanker company headquartered in Bermuda. It yields 11.6%, with a P/E of 13.85 and a high P/S of 7.95. Earnings for the latest quarter were up 19.5% on a 27.6% revenue increase.
Some of the other high yielding shipping stocks are:
US Shipping Partners (USS) 8.7%
Double Hull Tankers (DHT) 8.5%
Omega Navigation (ONAV) 8.3%
Arlington Tankers (ATB) 8.1%
Knightsbridge Tankers Ltd. (VLCCF) 7.9%
Eagle Bulk Shipping (EGLE )7.4%
Ship Finance International Ltd. (SFL) 7.2%
General Maritime (GMR) 7.0%
If you want to download an Excel database with all the shipping stocks and their yields and other financial data, go to Wall Street News Network.
Author does not own any of the above.
By Fred Fuld at Stockerblog.com.
2 comments:
I think you're lumping all of these companies together without really taking a look under the hood of each at the drivers of earnings and growth.
ONAV is a product tanker company with three year charters and is 100% booked through 2008 and 63% booked through 2009.
Eagle is a bulk tanker company, with long term charters and some ships coming off charter that should be able to book at higher rates.
All of the bulk tanker companies are consolidation plays as well. Very little of the industry is owned by big boys. By this I mean that if they can grow cash flow and credit facilities they can grow via acquisition at a very sustainable rate for quite some time.
The oil tanker biz is currently in the weak season but had a nice 2nd quarter. Third quarter looks weaker but historically pretty good. Divy's exposed to spot rates like FRO and NAT can be lumpy, but the trend has been your friend, and Frontline has found ways to create value through spin-offs, time and time again. Look for more.
When stock run-up like these, it's natural to get nervous. But valuations are below market in terms of many of the P/E's, and growth prospects related to the emerging markets and many macro-economic trends are bright.
I could detail a lot more, but I think I"ll stay long dry bulk shippers and clean product carriers. I'm not currently long any dirty oil tankers.
Glen W. Peterson
Private Investor,
Northfield, MN
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