Stolt-Nielsen posts its 4Q (September-November) figures next week and after an impressive 3Q we expect somewhat weaker figures for the quarter. However, the long-term expectations remain strong for the sector, attractive dividends have returned and even the chemical tanker spot rates have increased as of recent. Thus, our Buy recommendation for the stock is reiterated under the positively FX impacted slightly higher NOK 170/sh (NOK 165/sh previously) Target Price.
Strong other-than-tankers segments to help
Stolt-Nielsen posted very strong 3Q figures and we have taken a conservative stance of expecting it not to reach same figures this quarter, nevertheless, to provide very solid results. We adjusted the margins somewhat in a downward direction with a likely increase in the bunker prices but anticipate the company to reach USD 60m adj. EBIT level. Strong performance is projected in the Containers and Sea Farm, while the sentiment towards the main Tanker segment has also improved by the end of the quarter seeing the increasing chemical tanker spot rates.
Attractive long-term outlook
Strong economic recovery continues to be supported by the vaccination progress and not-as-bad-as-feared Omicron variant. The global GDP is expected to increase by more than 5% in 2021 and by more than 4% in 2022, which in a way signals for a slow but steady chemicals demand, even if China adds more uncertainty to the picture. Chemical Tankers are also expected to have less pressure from the swing tonnage as the crude oil and CPP tanker markets are improving. The supply side, chemical tanker orderbook, is at record low levels, strengthening the case. Furthermore, while we are waiting for the recovery in the chemical tanker market to finally materialize, there are other segments in Stolt-Nielsen that cover the tankers. Terminals are expected to stay stable at currently high utilization level. Stolt Tank Containers are guided to continue their strong performance in the coming quarters, while Sea Farms are said to be performing even beyond expectations with lower average cost of production and higher output levels.
USD 0.5/sh dividends are back
In the weaker part of the market’s cycle, Stolt-Nielsen had the dividends reduced from 2 x USD 0.5/sh to 2 x USD 0.25/sh. We were glad to see that the company has decided to pay USD 0.5/sh interim dividends after 3Q and anticipate Stolt-Nielsen to stay on track with another USD 0.5/sh dividends after 4Q and USD 1/sh annual dividends going forward.
Focus on decarbonization
Stolt-Nielsen is aiming for at least 50% reduction of the carbon intensity by 2030 compared to 2008 levels. The company stated that they have reached 27% efficiency improvement by 2020 compared to 2008, meaning a further 23% efficiency improvement is needed over the next decade. Although this does not translate into monetary figures, the positive sentiment is also an extremely important feature for the company.
We raised our Target Price for the stock from NOK 165/sh to NOK 170/sh. Once again, we anticipate the supplementary segments to help out the Tankers at the same time expecting the recovery in chemical tanker rates.
Source: Norne Research