Why analyst estimates for Nordic imply Suezmax rates of $21,000

Market Realist

Nordic American Tanker's new share offering might not be that bad (Part 5 of 8)

(Continued from Part 4)

Industry turnaround

Analysts generally are expecting the crude tanker industry to recover in 2014 and 2015. This would also be positive for the Guggenheim Shipping ETF (SEA) and crude tanker stocks such as Nordic American Tanker Ltd. (NAT), Frontline Ltd. (FRO), Teekay Tankers Ltd. (TNK), and Tsakos Energy Navigation Ltd. (TNP).

Reverse engineering

Nordic’s current consensus calls for an average EBITDA (earnings before interest, tax, depreciation, and amortization) of $63.56 million in 2014 and $81.7 million in 2015. Using these projections, we can reverse-engineer the expected average time charter rate for the two years.

In very simplistic terms, a shipping company’s financials can be broken into time charter revenues, vessel operating expenses, general and administrative expenses, depreciation and amortization, and interest expenses. Vessel operating expenses include the costs of crew, fuel, provisions, deck and engine stores, insurance, and maintenance and repairs. Time charter revenues minus vessel operating expenses, general, and administrative expenses should give investors a number close to EBITDA.

Per-vessel stats

Often, companies will provide the necessary information to calculate these accounts on a per-vessel day basis. In the past, each vessel cost Nordic American Tanker ~$8,750 a day in operating expenses and $2,400 a day in general and administrative activities. So based on Nordic’s 20 vessels, a consensus estimate of $63.56 million in EBITDA suggests each vessel will make $3.13 million in 2014 in EBITDA. Divide the $3.13 million by 365 days in a year, the average profit per day for a Suezmax class vessel is estimated at $8,575.

Given that it costs approximately $12,000 a day to operate a vessel for Nordic, daily time charter revenue per Suezmax should add up to ~$21,500 a day. This rate would be slightly below Nordic’s 2010 average time charter rate of $22,450 per vessel.

However, this doesn’t always mean the company’s shares will rise back up to 2010′s ~$24.00 a share.

Continue to Part 6

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