Epic Gas: Start Of Newly Acquired Vessels Should Improve The Top Line, Major Refinancing Will Reduce Interest
Epic Gas posts 3Q19 results next Thursday. We anticipate somewhat improved figures QoQ due to the start of commercial operations of two of four newly acquired vessels. In the beginning of 4Q19 the company also announced significant savings on interest due to a major refinancing of half the company’s fleet. We remain positive towards the niche pressurized LPG market expecting demand growth to exceed supply growth in the upcoming years and reiterate Buy recommendation for the stock under unchanged NOK 17/sh Target Price.
New vessels starting operations
Epic Gas 3Q19 figures are anticipated to show some improvement QoQ thanks to two newly acquired 11,000cbm Japanese-built vessels, although full impact is expected next quarter. In addition to those, two more same-size ships are due to complete in July and August increasing the number of the largest, 11,000cbm fully pressurized LPG vessels in the fleet from six to ten. Revenues in 3Q19 are expected to reach a record USD 42m, while the bottom line should be positioned around a break-even level.
Major refinancing will reduce interest payments
Epic Gas continues to refinance its debt with better conditions to make substantial savings on interest – firstly, the company announced a completion of refinancing of two ships that will result in the reduction of interest and amortization by USD 1.3m annually, while another announcement followed stating that a further twenty ships were refinanced resulting in savings of USD 2.8m annually. No further refinancing is needed until after 2023.
Buy reiterated with unchanged NOK 17/sh Target Price
The market outlook remains strong and Epic is well positioned to benefit from improving supply/demand balance. Our Buy recommendation for the stock with an unchanged NOK 17/sh Target Price is reiterated and we are awaiting new vessels to be a solid improvement for the revenues and combined with reduced interest to result in the positive stable bottom line.
Source: Norne Research