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Epic Gas: Solid improvement in smaller vessel rates, while rates for larger vessels still lagging to recover

Epic Gas posts its 4Q17 report next Wednesday. It was comforting to see the rates moving upwards with smaller vessels improving at a higher pace than we projected, although larger vessel rates are somewhat lagging to recover. We increased our estimates following the monthly market figures communicated by the company and reiterate Hold recommendation at a new Target Price of NOK 15/sh, but we do not expect EBIT to return to a positive territory until the second half of 2018 and see the company in risk regarding cash position.

Increasing rates signal an improvement in revenues QoQ

We anticipate Epic Gas to post its 4Q17 report with revenues continuously improving and reaching USD 36.3m (USD 34.5m in 3Q17). We saw a solid upwards movement in market rates for the smallest (3,500cbm and 5,000cbm) vessels lately – from USD 7.2k/d to USD 7.9k/d and from USD 8.8k/d to USD 9.5k/d September to December respectively. Although the pace of improvement for larger (7,500cbm and 10,000cbm) vessel rates somewhat disappointed, this would still be enough to reach the highest-ever quarterly sales in our view. Still, EBIT is forecasted to remain negative with the returning back to a positive territory only in the second half of 2018.

Risk related to cash position and refinancing remains

Epic Gas is very well positioned in the market with high entry barriers, has strengthened its fleet and we start seeing recovering rates. However, rather weak cash position, a possible need to refinance in 2019 and a positive bottom line not seen in the nearest future add up and we are somewhat cautious towards the stock. While, as previously mentioned, we see EBIT figures in the negative zone until the latter 2018, net profit in our estimates remains negative for one more year. If we see rates recovering faster, especially the ones for the largest vessels, our estimates would be adjusted, but until further development our Hold recommendation is reiterated.
Source: Norne Research

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