roger - at 6 or 7, I do not expect a secondary. TNK was trading at 6 per share in April of 2012, and was reflecting dividend visibility. I do not think we get back to 6 any time soon. In order to get to something close to 6 per share, TNK will need to push the fixed dividend to 10 cents per quarter, or 40 cents per year. That would represent a nice move from now, but still one of the lowest annual dividends on record.
If they are going to do a secondary, the share price needs to move well beyond $6, because the market needs to see the logic behind share dilution. What will push it beyond $6? Earnings of course, and an even higher pay-out. While I'm looking for 40 cents per year (as compared to 12 cents per year, right now a whopping 3% yield), let's not forget TNK used to pay out more than 40 cents per quarter.
TNK has a few more ships coming off of fixed charter in the 3rd quarter of 2014. Depending on what they can earn in the spot market, we may see more cash coming in. Expect to see a lackluster q4 report, but a good q1 report. Then a lull for a while.
I don't think that would be very received with a stock trading below $5. As a matter of course, many funds and/or large buyers will not touch anything trading sub-5.
What TNK needs to do is restore confidence in the company. The drop down of ships was a disaster, they still have not yet proven they can execute on that. The subsequent gaffes made them look bad.
They will have ample cash on hand should rates hang around. The problem now is, nobody will want to let go of a Suez or Afra while rates look so good. And any available crude tanker will get scooped up by private equity.
TNK needs to, in my view, get back to doing what they use to do: manage the original fleet. If they can unload the VLCC that's not under house arrest, it will give them some breathing room with their revolver. The other VLCC is toast. The Eqyptians are ransoming the ship, which is being linked, right or wrong, to a terrorist attack on another cable. You can more or less change the name of that ship to Muslim Brotherhood, because they own it now.
giovanni, with all due respect, yahoo doesn't manipulate the data feed. They can't even rid themselves of spammers. All yahoo wants to do is sell ads.
I think we have a confluence of some nervous shorts, and a market that is awakening to the spot rates sitting at the highest level in 3 years. This sector is not followed very well, and data is difficult to come by. The so called "order book" is in a constant state of flux, and too much emphasis is put on the numbers which can change over night. An order is not a delivery, as we are seeing.
There is a very good possibility we will go from an over supply of suezmax to an under supply. Some of the yards are backlogged, some will never fill the order, some of the financing will disappear. One of the private equity firms is likening this to the U.S. housing market, which went from over supply to a buying frenzy.
The story going forward is going to be about ship availability. All the noise about reduced shipments into the USA due to the shale boom was, and is, not well understood. One development to watch for is ... crude exports. There is no longer a reason to restrict this, and the administration will look good in endorsing it (while taking credit for the shale discovery).
if you are referring to a surge in aframax rates, yes, they are indeed surging. Not showing up on intertanko, but afra ships on some routes are making a huge amount on spot.
Agree ... people like to bash him as being greedy. Herb has more money that he ever can consume. Once these guys hit a certain level, the money isn't important. The have a desire to build the company.
giovanni - yahoo is not conspiring. They have a variety of data centers, not all of which update simultaneously. Your article is indeed a good one, as good as any brokerage might produce and call "research". Good job.
roger - they are on record as saying they will use any extra cash to pursue "growth", which implies they want to buy ships. The bad news is ship prices are on the upswing, and with what looks like a shrinkage of the fleet due to a weak orderbook and a bunch of vessels hitting age 15, used ships are costing more by the day.
What hurt them was their foray into product tankers, and the failure of the yard to deliver the ships. In the meantime, a host of other companies both public and private, have more reputable yards welding hulls as you read this.
So it looks like they will be chasing an Aframax or Suezmax to add to the fleet.
As far as the dividend goes, if these rates stay, the company will generate 40 million, which in one quarter is sufficient to fund a 10 cent dividend for 4 quarters, and still retain cash. 3 cents is ridiculous.
The above 40 million is without the two VLCCs, one if which continues to sail in circles. If wanting to pay down ling term debt, selling both VLCCs should generate something like 150 million, and would help the debt profile.
bill these rates should hold for a couple of months due to weather. There also the pie-in-the-sky talk of using suzies to export what's flooding out of the shale states.
mad - there's something broken at TNK, but management is not forthcoming. Intertanko lists the annual average rates for the 3 classes of ships that TNK sails. But if we isolate on only the Aframax and Suezmax, you'll find that the average annual rates in 2013 are exceeding the rates of 2012 and 2011. Suez is a bit behind but will surpass soon, and Afra is already ahead of both years. So in the aggregate, we have a better rate environment in 2013 than was seen in 2012, or 2011.
Dividends are a function of how much cash is earned via the shipping rates. So it's logical to assume 2013's dividend would be similar to 2012, or 2011, correct? Lets take a look:
2013 annual dividend: 12 cents
2012 annual dividend: 40 cents
2011 annual dividend: 83 cents
To further compound the lunacy of the 2013 dividend, TNK has fixed charter revenue from a joint venture VLCC that was not in the 2012 or 2011 cash available for distribution.. And, due to a months of surging vlcc rates, TNK is getting and additional cash windfall from profit sharing on that ship alone. Yet not a word from the company.
TNK has two other VLCCs making a higher spot than anything seen in 3 years. See anything wrong? TNK blundered in early 2013 when they fixed the dividend at 3 cents, coming off of a 2 cent dividend the previous panic quarter. Had they not fixed it, we'd be looking at an annual payout looking more similar to 2012. As such, the market is discounting TNK. Look at the surge in NAT and FRO today, and compare to TNK.
My take is the street has lost confidence in management. They obscured that fact that they foreclosed on a ship that had no chance of sailing, and sits dead in the water 9 months after it was seized. Well, not actually dead, it is literally sailing in circles, thus burning some bunker fuel. They ordered product tankers from an unstable yard, and now they are threatening to sue a bankrupt entity. What's next?
Yeah ... but it's pretty clear these rates are good into March, so if the fast money thinks this will go away soon, they'll be burned. Perhaps rates not this high, but I do not see them going below 30K per day for the next couple of months and by then we will have more clarity on the worldwide fleet.
Q1 will be a sequential beat, and a year over year beat.
Longer term, suez class ships are projected to do well due to the need to scrap older vessels and now longer trade routes as Asia gets thirsty for oil.
HH has already gone on record as saying q4 will not look very good, so .50 is out of the question. More important will be when he updates how rates have been performing - not that they are difficult to determine, but the industry has nobody assigned to it. In any other industry, the latest surge would get the analysts hopping around, but this is the Siberia of sectors.
fire - due to the way shipping companies book revenues, q4 more or less ended 3 days ago. This recent surge in rates will not be seen in the earnings.
However, the longer rates stay at these levels, the better, and they will impact q1.
sam - my take.
TNK is marching to its own drummer. The company has little to no coverage, and has a history of failures. Making a 10% mortgage to a weak shipper was a disaster. Question for you ... if someone with no stability asked you for money, would you lend to them at 10%, 20%, 30% ? No ... why lend at all if you will not get repaid. And how poorly run was the shipper that TNK gave 110 million to? The ship that got arrested was warned away from the area where it struck the telecom cable last March. It is never a good idea to disregard the harbor master warnings. The moment that ship got arrested by the Eqyptian navy, TNK knew it was game over. And yet, not a word was said at the Q2 conf call, even though it was common knowledge one of the ships securing the mortgage was being held by a foreign government.
Is the 40 million dollar claim by the Eqyptians outrageous? Yes, but nobody is going to challenge a foreign government, and especially one that is in the midst of political unrest. The insurance adjusters cannot even visit the area. Why? Their own government (UK) has a travel advisory. I can't blame them - fair skinned people tend to get kidnapped and/or murdered there. That ship will only be released when the proper bribe is paid. They want 40 million, 20 should do the trick. But, the insurance company is under no obligation to overpay. Actual damages are far less, we are talking about a telecom cable.
As far as rates go ... no, they will not hold at these levels. They never do. This is a weather related event. However, when the rates come back down, I think they will settle at a level where there is profit. The supply-demand picture is improving, slowly, and so I see afra and suex rates in the high teens to mid 20's.
Perhaps the most intriguing possibility is whether the USA will lift the sanctions on crude exports. If that occurred, it would boost afra and suez rates, as those ships are able to handle the gulf cost exports.
pb, I'm wrong on the dividend policy? Not sure how anyone can be considered wrong, or right, when predicting a future event. My opinion was, and is, that is it unlikely the company will blast the dividend from 3 cents to 30 cents. Why? It implies the management cannot be trusted with visibility. The only two options I see are: maintain dividend, dodge questions during the conf call, or, push it to something like 5 cents and still dodge questions.
If I understand you correctly, you are saying that TNK received a 110M cash payment from the insurance company? And in consideration, the insurance company took the title to two ships worth approximately 75 million dollar each? So TNK gets made whole, and the insurance company is in the black by 40 million dollars?
Curious to know why TNK took a loan loss provision of 10 million dollars, being as they had, as you say, a guarantee on the loan. And curious to know why TNK stated they are earning a "return" of 6.5 percent, on this "investment". Please enlighten me on this 110 million cash payment, and why they felt it was necessary to book a loan loss provision.
pb, with all due respect, that would be a bad move because it would send a signal that management is flip-flopping. About all they can do at this stage is keep the fixed dividend policy, but, bump it higher.
If not already obvious, TNK has a credibility issue. I have identified previously the numerous errors. Unfortunately, their "prowess" was demonstrated after the fact. I'm surprised the CEO still has his job.
Well, they actually got as high as $63,000 per day on some routes. Not so insane when you realize the long term average is about 40,000 per day, and, we are experiencing the typical Winter spike. What you're seeing is "normal", the last 4 years have been anything but normal.