Although the first quarter (December-February) is usually the seasonally weakest for Stolt-Nielsen, this time the company showed no signs of weakness. Last week Stolt-Nielsen posted the strongest 1Q quarterly results since 2008 with Tank Containers leading the way. However, the war in Ukraine might disrupt the market and brings a lot of uncertainty. As for Odfjell talks, it was reiterated, that there is a need of consolidation in the chemical tanker industry to make it environmentally and economically sustainable, but the ball is arguably at Odfjell’s field now. We increased the estimates after the strong report and Buy was reiterated at a higher NOK 210/sh TP.
Very solid margins resulted in the strongest first quarter since 2008.
Stolt-Nielsen managed to again surprise us on a very strong figures reported last Thursday. Typically, the first quarter (December-February) is the seasonally weakest for the company, but solid margins and record numbers from Tank Containers brought the quarterly results to the peak since 1Q08. Although shipment volumes were down, the margins were supported by securing the space on container ships and higher demurrage revenue. At Stolt Tankers firmer spot rates helped to offset the higher bunker costs. Stolthaven Terminals showed increased utilization and throughput volumes that resulted in higher both the revenues and the margins, while the Sea Farm had an unusually-for-1Q stable sales volumes and prices.
Ukraine brings uncertainty
It is still hard to speculate on the full impact of the war in Ukraine. Stolt-Nielsen pointed out the skyrocketing oil and gas prices, but also no further newbuild orders in the chemical tanker space and the swing tonnage beginning to exit the chemical trade. The utilization rates in Terminals were guided to strengthen, shipments in Tank Containers to reduce, but still give a record year for STC. Sea Farm should not be impacted.
Speculation on a potential merger not denied
It was agreed in the report that such moves as breaching the 5% ownership line for Odfjell’s shares had to bring speculations of a potential merger between the two leaders of chemical shipping and, furthermore, the plans were not denied. The CEO of Stolt-Nielsen reiterated his beliefs that there is a need for consolidation in the chemical tanker industry to make it environmentally and economically sustainable.
Overall, the report was very strong, and we increased our estimates as well, which resulted in a higher NOK 210/sh Target Price. Seeing a significant upside, we reiterated Buy recommendation for the stock.
Source: Norne Research