Odfjell posted 2Q21 figures yesterday and while we were spot on revenue expectations, somewhat higher-than-we-estimated bunker costs brought the EBITDA below our predictions and the bottom line to a negative territory. 3Q is guided seasonally slower with the continued challenging CPP market, but the longer-term prospects remain promising, with demand growth expected to significantly outperform the vessel supply growth. Thus, we made limited changes to our estimates and our Buy recommendation is reiterated.
Slightly improved quarter, but still not breakeven
Slightly improved results QoQ were reported driven by operational improvements, as the chemical tanker market was communicated to have remained challenging. The Texas freeze from 1Q21 still impacted the market, but the effects eased during the quarter and markets began to normalize, although still at depressed levels. The main challenges are related to volume disruptions due to Covid-19 and a historically weak CPP market, leading to increased supply pressure from swing tonnage. Revenues for the tankers came in spot on our expectations, but higher-than-we-predicted bunker expenses brought the other metrics lower and the bottom line to a negative territory.
Slower 3Q guided, long-term outlook reiterated
The third quarter is usually seasonally weaker, while adding the challenging CPP market results in a guidance for lower figures QoQ in 3Q21. The weak crude and corresponding CPP markets were said to be the main challenge for a sustainable recovery for the chemical tanker market. However, despite the short-term uncertainty and possible new Covid-19 disruptions, the fundamentals remain strong, with the average annual demand growth in the next three years of 3-4% and the limited supply growth expectations of 1% over the same period. And we might not need to wait that much, as it is expected that crude demand will recover during 2H21, leading to stronger CPP markets and reduced supply pressure in the chemical tanker market.
Completed exit from the LPG space
Two LPG vessels were held for sale for quite some time now and Odfjell finally managed to enter into an agreement with BW Epic Kosan and will receive undisclosed amount of cash plus the company’s shares. The proforma balance sheet effect is a reduction in total debt of USD 20, and the sale will result in a minor positive impact on P&L in 4Q21.
Buy recommendation stays under little-changed estimates
We have somewhat reduced our estimates for 3Q21 following the guidance, but as the fundamentals signal for a brighter future, we made very limited changes to our long-term estimates. Thus, Buy recommendation is reiterated with unchanged NOK 40/sh Target Price.
Source: Norne Research