Must-know: An overview of Nordic American Tankers (Part 5 of 6)
Nordic’s low debt
Nordic American Tankers (NAT) has always kept a strong balance sheet with low net debt. NAT focuses on limiting the company’s financial risk. Continuing this policy, at the end of the 1Q14, net debt per NAT vessel stood at $6.4 million.
The tightened terms of commercial bank financing and higher margins on shipping loans are challenging for shipping companies that are highly leveraged. By having little net debt and a strong balance sheet, NAT is better positioned to navigate the financial seas. The company believes that this is in the best interests of the shareholders.
In weaker market conditions in 2012 and 2013, NAT used the opportunity to have ships in planned drydock for maintenance to ensure continued top technical quality of the vessels. This has proved very advantageous to implement the comprehensive drydocking, maintenance, and improvement work for many of NAT’s ships during a period of low rates, when the cost of time is lower. NAT operates in an industry with peers like DHT Holdings Inc. (or DHT), Teekay Tankers Ltd. (TNK), Navios Maritime Acquisition (NNA), and Tsakos Energy Navigation Ltd. (TNP). The Guggenheim Shipping ETF (SEA) tracks these companies.
Looking ahead, with NAT completing its two drydockings in 2014, drydocking costs and off-hire—time out of service—should be significantly reduced and the number of revenue days should increase because there aren’t anymore scheduled drydockings for 2014.
Looking ahead the company comments that NAT is in an excellent position to reap immediate financial benefits when the market turns around. Also, with its fleet in top technical condition, NAT has been able to expand its Suezmax fleet from 20 to 22 vessels in 2014. Meanwhile, a stock issue of 13.8 million shares closed on April 10. It generated net proceeds of $113.6 million which would be reflected in the 2Q14 financials.
Also, it predicts a period in the tanker business where the supply of ships will shrink. This will lead to an improved balance between supply and demand. The recent volatility in the spot market is also indicating a tighter balance between supply and demand.
In the future, the company estimates that after the acquisition of vessels or other forms of vessel expansion, NAT should be able to pay higher dividend per share and produce higher earnings per share.
Browse this series on Market Realist:
- Part 1 - Overview: Nordic American Tankers
- Part 2 - Why a unique business model supporting high dividend growth
- Part 3 - Must-know: Nordic American Offshore’s synergy benefits to Nordic
- Investment & Company Information