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Challenging period for chemical tankers continues

Stolt-Nielsen posts its 2Q17 report next Thursday. We saw continuous struggle in chemical tanker rates that are now testing the lowest bounds in the post-crisis period and expect this to be reflected in the results. The mid-reporting season was rather slow with no updated information on the separation of Tanker segment, that led the share price rally previously and not an essential addition of two gas vessels by end-2018. Our estimates were lowered somewhat and we reiterate Hold recommendation at a lower TP of NOK 130/sh (from NOK 145/sh).

Estimates lowered despite new vessels in operations

Stolt-Nielsen is reporting 2Q17 results on July 6th. We anticipate to see seasonally stronger figures QoQ, plus three new vessels were scheduled to start operations in 2Q17, however, we see the negative effect of rather low rates somewhat offsetting the fleet improvement. Overall, revenues including JV are expected to slightly overstep the USD 500m bar (USD 496m excluding), while guided general expenses and depreciation lead us to USD 54m EBIT expectations.

Two years of recovery are underway – 2 newbuilds for the gas section ordered

Stolt-Nielsen communicated during the last presentation that only 2018 is expected to become a year of recovery, while 2017 is seen as the year of rates bottoming out and the fleet expansion. 3 New vessels started operations already, there are 4 more to come in 2017 and one in 1Q18. Furthermore, the company announced to have contracted with a Chinese yard to deliver two 7,500 cbm LNG carriers with options to purchase additional three. Ships are valued at USD 80m with deliveries scheduled in 2Q19 and 3Q19 respectively.

What is next? Tanker split – if a partner is found; dividends – most likely

The Board has approved the clear split of Tanker segment, but there will be no rush to proceed with an IPO, especially if SNI fails to find a partner operator – then there might be no IPO for Tankers at all. No update was issued during the mid-reporting season but we might hear something during the 2Q presentation. We also expect the company to keep two semi-annual dividend payments (for 3Q and 4Q) of USD 0.5/sh each, as this distinguishes it from its main competitor, while we see the cash capacity for the payments to be retained.

Hold reiterated at NOK 130/sh Target Price

Our Hold recommendation is reiterated at a lowered TP, after we made some downward changes to our estimates seeing the chemical rates stuck at the low level longer than expected, while uncertainties following the Tanker split remain.
Source: Norne Research

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