Stolt-Nielsen posted its 4Q (September-November) report last week and the results came in somewhat stronger than we expected led by increased tanker trading results. The guidance indicate a continuing strengthening for the tanker markets, flat Terminals and a reduction for Tank Containers. However, the contract renewing situation is mixed with the average rate increasing by 30%, but 16% customers not agreeing. We still believe the company should have at least very solid 2023 ahead and reiterate Buy at a higher NOK 350/sh Target Price.
Figures somewhat higher than we predicted
As we were suggesting, this has been the third very solid quarter in a row for Stolt-Nielsen with us being even too conservative. With in-line revenues of USD 732.5m the company
managed the costs better than we predicted and reported EBITDA of USD 198m vs. USD 192m our expectations. Increased chemical tanker trading results were driven by higher spot rates and spot volumes and more than offset increased bunker expenses. The somewhat stronger results moved throughout the profit and loss statement and the adjusted EPS beat our estimates by 8%.
Mixed contract renewable story
The fourth quarter is the peak of contract renewal season with about 55% of total contracts up for negotiations. While the average increase on the renewed contracts was communicated to be approximately 30%, but as much as around 16% of the contract portfolio was not renewed as eventually some of the customers were not prepared to accept the increase and decided to move to the spot market rather than to the competitors. However, the company communicated two add-ins to the story: firstly, several customers who decided to switch contracts to spot market have already signed at even higher spot prices and secondly, around half of the leaving customers were offset by completely new clients signing COAs.
Guidance for the segments for 2023
With little to no growth in the global chemical tanker fleet in the next few years, and newbuilding orders not available for delivery prior to 2026, Stolt-Nielsen expects continued strengthening of chemical tanker markets. For the short-term, the company provided the guidance of Sailed-In Revenues per operating day ratio to increase 5-7% QoQ in 1Q23. Sailed-in revenue per day is calculated as voyage revenue less voyage related expenses and trading overhead expense, divided by total operating days during the period and we have modelled our expectations based on this ratio. The company also expects a flat performance for Terminals YoY in 2023, while the Tank Containers should return to pre-2022 historical earnings, which should imply a significant drop YoY. Still, we believe the improvement in tankers come with some lag and signal for at least the strong 2023. We reiterate Buy recommendation at a higher NOK 350/sh Target Price.
Source: Norne Research