Strong Oman Terminal Sale lights up a soft chemical tanker market

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Odfjell posts its 3Q report on Thursday and we expect a slower quarter due to softer chemical market, but a positive bottom line to stay. We received some positive news recently of strengthening the tanker division and selling Oman’s Terminal at an attractive price. We included both in our model as more details about shipbuilding contracts were just announced. Buy is retained with an unchanged Target Price of NOK 40/sh.

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Results expected lower QoQ
Odfjell posts 3Q16 report on Thursday and we expect main figures to come slightly lower QoQ due to softer chemical tanker market, but the bottom line to remain in a positive territory. Revenues of USD 200m are expected with the Tanker segment accounting for 85%. A slight decline in EBIT QoQ is anticipated, but EPS is seen to stay positive at USD 0.13/sh.

Attractive valuation of the Oman’s Terminal sale
Odfjell announced selling its ownership in a terminal in Oman, the second largest after Rotterdam that ODF had business in, for around USD 130m (51% goes to Odfjell SE). The sale was valued at EV/EBITDA level of 12 (with annualized EBITDA of USD 8m) and the company confirmed our calculations. Comparing to estimated EV/EBITDA of 6.5 in 2016 for the whole company, we find the sale price attractive.

Odfjell Bow Clipper tanker BIG

More details on the 4 Super Segregator Newbuildings
Just a few days ago Odfjell officially confirmed to have signed shipbuilding contracts with China Shipbuilding Trading and Hudong-Zhonghua Shipbuilding Group for the construction of a series of 4 chemical tankers. The vessels will have a capacity of 49,000dwt (the world’s largest stainless steel chemical tankers). The first one is expected to be delivered in June 2019 and the following vessels with 3 month intervals. Capital commitments will be USD 60m/vessel. Although we have included them in our model, we might adjust our expectations if some more information is released, as these are to be replacement-vessels. Also, up to four additional newbuilds might be ordered.

Buy with unchanged TP of NOK 40/sh stays
Although 3Q16 is expected somewhat slower, a positive bottom line in a softer environment for chemical tankers is still seen. However, our view was strengthened by the valuation of Oman Terminal and until further news about super segregators, Buy with NOK 40/sh stays.
Source: Odfjell